Question 1

Which of the following is not a reason to use factoring services?

Accepted Answer

A) it is a form of credit insurance 
B) it eliminates overhead 
C) management is freed from concern with financial matters 
D) lower cost 
A) it is a form of credit insurance 
B) it eliminates overhead 
C) management is freed from concern with financial matters 
D) lower cost

Question 2

The most frequently cited justification for requiring a compensating balance is:

Accepted Answer

A) for a commission;to cover the costs of loaning the money 
B) to be reassured of some recovery in the event of bankruptcy of the firm 
C) to make bank borrowers also be depositors 
D) to pay interest for the use of the money 
A) for a commission;to cover the costs of loaning the money 
B) to be reassured of some recovery in the event of bankruptcy of the firm 
C) to make bank borrowers also be depositors 
D) to pay interest for the use of the money

Question 3

If net working capital is negative:

Accepted Answer

A) current assets are greater than current liabilities 
B) it represents the portion of fixed assets that are financed through long-term financing 
C) it represents the portion of fixed assets that are financed by current liabilities 
D) none of the above 
E) all the above 
A) current assets are greater than current liabilities 
B) it represents the portion of fixed assets that are financed through long-term financing 
C) it represents the portion of fixed assets that are financed by current liabilities 
D) none of the above 
E) all the above

Question 4

A compensating balance on a bank loan effectively ____________ the cost of the loan.

Accepted Answer

A) raises 
B) lowers 
C) has no effect on 
D) has an indeterminate effect on 
E) none of the above 
A) raises 
B) lowers 
C) has no effect on 
D) has an indeterminate effect on 
E) none of the above

Question 5

In general,a firm that secures a bank line of credit pays interest on:

Accepted Answer

A) the full line of credit. 
B) only half of the amount actually borrowed. 
C) on the unused portion of the line of credit. 
D) on the amount borrowed as well as on the unused portion of the line of credit. 
E) none of the above 
A) the full line of credit. 
B) only half of the amount actually borrowed. 
C) on the unused portion of the line of credit. 
D) on the amount borrowed as well as on the unused portion of the line of credit. 
E) none of the above

Question 6

If a company can stretch its accounts payable without damaging its credit rating,it is effectively ___________ the cost of foregoing the cash discount.

Accepted Answer

A) increasing 
B) translating 
C) not affecting 
D) not able to determine. 
E) none of the above 
A) increasing 
B) translating 
C) not affecting 
D) not able to determine. 
E) none of the above

Question 7

Permanent current assets reflect the minimum investment level in cash,accounts receivable,and inventories needed to support sales.

Accepted Answer

A) True 
 B)False

Question 8

A revolving credit agreement is a commitment in the form of a standby agreement for a guaranteed line of credit.

Accepted Answer

A) True 
 B)False

Question 9

The effective annual interest rate on a loan in which a company borrows $1000,000 for one year at 8 percent and requires a compensating balance of 10 percent is:

Accepted Answer

A) 7.5% 
B) 9.5% 
C) 9.9% 
D) 7.9% 
E) none of the above 
A) 7.5% 
B) 9.5% 
C) 9.9% 
D) 7.9% 
E) none of the above

Question 10

The purchaser may deduct 2% from the purchase price if payment is made within 10 days;but if not paid within 10 days,the net amount of the purchase is due within 30 days.The sale is made on what terms?

Accepted Answer

A) 10/30,net/2 
B) 2/10,net/30 
C) 2/30,net/10 
D) 10/2,net/30 
A) 10/30,net/2 
B) 2/10,net/30 
C) 2/30,net/10 
D) 10/2,net/30

Question 11

Using aggressive approach for financing a firm's assets,long term financing would be used only to finance fixed assets,while short term financing would be used to finance current assets including seasonal fluctuations.

Accepted Answer

A) True 
 B)False

Question 12

Commercial banks lend unsecured short-term funds in the following three basic ways:

Accepted Answer

A) Commercial paper,lines of credit,and revolving credit agreements. 
B) Single-payment note,revolving credit agreements,and commercial paper. 
C) Single-payment note,lines of credit,and revolving credit agreements. 
D) none of the above 
A) Commercial paper,lines of credit,and revolving credit agreements. 
B) Single-payment note,revolving credit agreements,and commercial paper. 
C) Single-payment note,lines of credit,and revolving credit agreements. 
D) none of the above

Question 13

The effective annual interest rate on a loan in which a company borrows $1000,000 for one year at 8 percent and requires a compensating balance of 10 percent is:

Accepted Answer

A) 7.5% 
B) 8.5% 
C) 8.9% 
D) 7.9% 
E) none of the above 
A) 7.5% 
B) 8.5% 
C) 8.9% 
D) 7.9% 
E) none of the above

Question 14

For bank loans,the effective interest rate is generally

Accepted Answer

A) not affected by whether or not the loan is a discount loan or a traditional loan. 
B) higher if the loan is a premium loan. 
C) lower if the loan is a discount loan. 
D) higher if the interest is paid at maturity. 
E) none of the above 
A) not affected by whether or not the loan is a discount loan or a traditional loan. 
B) higher if the loan is a premium loan. 
C) lower if the loan is a discount loan. 
D) higher if the interest is paid at maturity. 
E) none of the above

Question 15

The Small Business Administration cannot assist in the financing of small enterprises by:

Accepted Answer

A) making direct loans to businesses 
B) participating jointly with private banks in extending loans to businesses 
C) engaging in accounts receivable financing 
D) agreeing to guarantee a bank loan 
A) making direct loans to businesses 
B) participating jointly with private banks in extending loans to businesses 
C) engaging in accounts receivable financing 
D) agreeing to guarantee a bank loan

Question 16

2/10 net 30 translates as

Accepted Answer

A) a 2 percent cash discount may be taken if paid in 10 days of shipment;if not paid within 10 days,the net amount is due in 30 days. 
B) a 2 percent cash discount may be taken if paid in 10 days of shipment;if not paid within 10 days,the net amount is due 30 days after the middle of the month. 
C) a 2 percent cash discount may be taken if paid in 10 days of shipment;if not paid within 10 days,the net amount is due 30 days after the end of the month. 
D) a 2 percent cash discount may be taken if paid in 10 days of shipment;if not paid within 10 days,the net amount is due in 20 days. 
E) none of the above 
A) a 2 percent cash discount may be taken if paid in 10 days of shipment;if not paid within 10 days,the net amount is due in 30 days. 
B) a 2 percent cash discount may be taken if paid in 10 days of shipment;if not paid within 10 days,the net amount is due 30 days after the middle of the month. 
C) a 2 percent cash discount may be taken if paid in 10 days of shipment;if not paid within 10 days,the net amount is due 30 days after the end of the month. 
D) a 2 percent cash discount may be taken if paid in 10 days of shipment;if not paid within 10 days,the net amount is due in 20 days. 
E) none of the above

Question 17

The Small Business Administration assists in the financing of small businesses in which of the following ways?

Accepted Answer

A) making direct loans to businesses 
B) participating jointly with banks in extending loans to businesses 
C) guaranteeing bank loans to businesses 
D) all the above 
A) making direct loans to businesses 
B) participating jointly with banks in extending loans to businesses 
C) guaranteeing bank loans to businesses 
D) all the above

Question 18

The need for current funds increases when there is an upswing in the business cycle or the sales cycle of an industry.

Accepted Answer

A) True 
 B)False

Question 19

If a borrowing firm does not qualify for an unsecured bank loan and pledges its accounts receivable as security,it eliminates the need for a credit investigation.

Accepted Answer

A) True 
 B)False

Question 20

Stocks and bonds are rarely used as collateral for short-term loans.

Accepted Answer

A) True 
 B)False

Which of the following is not a reason to use factoring services?

The most frequently cited justification for requiring a compensating balance is:

If net working capital is negative:

A compensating balance on a bank loan effectively ____________ the cost of the loan.

In general,a firm that secures a bank line of credit pays interest on:

If a company can stretch its accounts payable without damaging its credit rating,it is effectively ___________ the cost of foregoing the cash discount.

Permanent current assets reflect the minimum investment level in cash,accounts receivable,and inventories needed to support sales.

A revolving credit agreement is a commitment in the form of a standby agreement for a guaranteed line of credit.

The effective annual interest rate on a loan in which a company borrows $1000,000 for one year at 8 percent and requires a compensating balance of 10 percent is:

The purchaser may deduct 2% from the purchase price if payment is made within 10 days;but if not paid within 10 days,the net amount of the purchase is due within 30 days.The sale is made on what terms?

Using aggressive approach for financing a firm's assets,long term financing would be used only to finance fixed assets,while short term financing would be used to finance current assets including seasonal fluctuations.

Commercial banks lend unsecured short-term funds in the following three basic ways:

The effective annual interest rate on a loan in which a company borrows $1000,000 for one year at 8 percent and requires a compensating balance of 10 percent is:

For bank loans,the effective interest rate is generally

The Small Business Administration cannot assist in the financing of small enterprises by:

2/10 net 30 translates as

The Small Business Administration assists in the financing of small businesses in which of the following ways?

The need for current funds increases when there is an upswing in the business cycle or the sales cycle of an industry.

If a borrowing firm does not qualify for an unsecured bank loan and pledges its accounts receivable as security,it eliminates the need for a credit investigation.

Stocks and bonds are rarely used as collateral for short-term loans.

The Financial Environment

Money and the Monetary System

Banks and Other Financial Institutions

Federal Reserve System

Policy Makers and the Money Supply

International Finance and Trade

Savings and Investment Process

Interest Rates

Time Value of Money

Bonds and Stocks: Characteristics and Valuation

Securities Markets

Financial Return and Risk Concepts

Business Organization and Financial Data

Financial Analysis and Long-Term Financial Planning

Managing Working Capital

Capital Budgeting Analysis

Capital Structure and the Cost of Capital

Filters

Exam 16: Short-Term Business Financing

Which of the following is not a reason to use factoring services?

The most frequently cited justification for requiring a compensating balance is:

If net working capital is negative:

A compensating balance on a bank loan effectively ____________ the cost of the loan.

In general,a firm that secures a bank line of credit pays interest on:

If a company can stretch its accounts payable without damaging its credit rating,it is effectively ___________ the cost of foregoing the cash discount.

Permanent current assets reflect the minimum investment level in cash,accounts receivable,and inventories needed to support sales.

A revolving credit agreement is a commitment in the form of a standby agreement for a guaranteed line of credit.

The effective annual interest rate on a loan in which a company borrows $1000,000 for one year at 8 percent and requires a compensating balance of 10 percent is:

The purchaser may deduct 2% from the purchase price if payment is made within 10 days;but if not paid within 10 days,the net amount of the purchase is due within 30 days.The sale is made on what terms?

Using aggressive approach for financing a firm's assets,long term financing would be used only to finance fixed assets,while short term financing would be used to finance current assets including seasonal fluctuations.

Commercial banks lend unsecured short-term funds in the following three basic ways:

The effective annual interest rate on a loan in which a company borrows $1000,000 for one year at 8 percent and requires a compensating balance of 10 percent is:

For bank loans,the effective interest rate is generally

The Small Business Administration cannot assist in the financing of small enterprises by:

2/10 net 30 translates as

The Small Business Administration assists in the financing of small businesses in which of the following ways?

The need for current funds increases when there is an upswing in the business cycle or the sales cycle of an industry.

If a borrowing firm does not qualify for an unsecured bank loan and pledges its accounts receivable as security,it eliminates the need for a credit investigation.

Stocks and bonds are rarely used as collateral for short-term loans.

The Financial Environment

Money and the Monetary System

Banks and Other Financial Institutions

Federal Reserve System

Policy Makers and the Money Supply

International Finance and Trade

Savings and Investment Process

Interest Rates

Time Value of Money

Bonds and Stocks: Characteristics and Valuation

Securities Markets

Financial Return and Risk Concepts

Business Organization and Financial Data

Financial Analysis and Long-Term Financial Planning

Managing Working Capital

Capital Budgeting Analysis

Capital Structure and the Cost of Capital

Filters