Exam 16: Short-Term Business Financing

A compensating balance requirement means that a lending institution will require a borrowing company to keep a certain percentage of the loaned amount on deposit with that institution.

In general,most businesses should take advantage of a cash discount of 2/10 net 30 because the cost of not doing so is more expensive than the cost of borrowing.

Pledging accounts receivable has all of the following characteristics except:

A discounted loan is one in which the borrower receives the principal plus the interest at the time the loan is made.

Which of the following might be a characteristic of a field warehouse?

Assume that Ningbo Steel borrows $1,000,000 for one year under a line of credit with a stated interest rate of 7.5 percent and a 15 percent compensating balance and that the firm keeps no money on deposit in its checking account.Based on this information,the effective annual interest rate on the loan is

The factoring of receivables:

Bank loans on which interest is paid up front in advance are called:

Higher financing cost and lower risk of not being able to borrow when short-term funds are needed are characteristics of:

A discounted loan is one in which the borrower receives a discount on the interest rate.

Ningbo Steel was extended credit terms of 3/15 net 30 EOM.The cost of giving up the cash discount,assuming payment would be made on the last day of the credit period,is 75.26 percent.If the firm were able to stretch its accounts payable to 60 days without damaging its credit rating,the cost of giving up the cash discount would only be