Exam 15: Working-Capital Management

Three basic factors that determine which sources of short-term financing a firm uses are the effective cost of financing,the availability of credit,and the influence of the use of a particular credit source on the cost and availability of other sources of financing.

With regard to the hedging principle,which of the following would be an appropriate method to finance a minimum level of current assets required for year round operations?

Calculate the effective cost of the following trade credit terms if the discount is forgone and payment is made on the net due date. a.2/10 net 50 b.2/15 net 60 c.2/20 net 45

Accrued wages and taxes are secured sources of financing because companies are obligated to make these payments before they make payments on any other loans or pay dividends.

The inventory loan arrangement in which all of the borrower's inventories are used as collateral is termed a

Your company needs to pay $10,000 for the overhaul of five trucks.A bank offers you a loan at 18 percent per annum with a compensating balance requirement of 15 percent of the loan amount.You plan to borrow the money for 9 months and currently do not have any account with this bank.What is the effective cost of the loan?

A revolving credit agreement is a legally binding agreement between a borrower and lender.

The Boyles Ceramics,Inc.established a line of credit with a local bank.The maximum amount that can be borrowed under the terms of the agreement is $1,000,000 at an annual rate of 8 percent.A compensating balance averaging 25 percent of the amount borrowed is required.Prior to the agreement,Boyles had no deposit with the bank.Shortly after signing the agreement,Boyles needed $240,000 to pay off a note that was due.Boyles decides to borrow an amount sufficient to pay the $240,000 note and also to cover the compensating balance.How much must Boyles Glass borrow?

Which of the following loans provide the least amount of security to the lender?

Which of the following sources of short-term financing is likely to have the lowest interest rate?

The firm's total investment in current assets should be financed with temporary sources of financing.

Worthington,Inc.is planning to issue $7,500,000 in 120-day maturity notes carrying a rate of 11 percent per year.Worthington's commercial paper will be placed at a cost of $35,000.What is the effective cost of credit to Worthington?

Brown Inc.needs to borrow $250,000 for the next 6 months.The company has a line of credit with a bank that allows the company to borrow funds with an 8% interest rate subject to a 20% of loan compensating balance.Currently,Brown Inc.has no funds on deposit with the bank and will need the loan to cover the compensating balance as well as their other financing needs.What will be the annual percentage rate,or APR,for this financing?

Which of the following is an advantage of utilizing short-term debt to finance the acquisition of short-term assets?

Which of the following is considered a spontaneous source of financing?

In general,the greater a firm's reliance upon short-term debt or current liabilities,

Accrued taxes and salaries payable are both sources of spontaneous financing.

DAS,Inc.has a line of credit with FBT Bank that allows DAS to borrow up to $400,000 at an annual interest rate of 11 percent.However,DAS must keep a compensating balance of 25 percent of any amount borrowed on deposit at the bank.DAS does not normally have a cash balance account with the bank.What is the effective annual cost of credit?

Working capital refers to investment in current assets,while net working capital is the difference between current assets and current liabilities.

Which of the following is an unsecured short-term bank loan made for a specific purpose?