Question 1

The approximate effective cost (EC) of financing the discount price of trade credit under terms 2/10, net/30 using a 360 day year is:

Accepted Answer

A) 25% 
B) 30.1% 
C) 36.737.2% 
D) 42.5% 
A) 25% 
B) 30.1% 
C) 36.737.2% 
D) 42.5%

Question 2

The prime rate is the interest rate the bank charges its most creditworthy customers.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is not an important source of short-term funds to small businesses?

Accepted Answer

A) commercial banks 
B) commercial paper 
C) accounts receivable secured loans and/or use of factors 
D) the Small Business Administration 
A) commercial banks 
B) commercial paper 
C) accounts receivable secured loans and/or use of factors 
D) the Small Business Administration

Question 4

To compute the effective cost of a revolving agreement, the joint effect of interest on borrowed funds and commitment fees must be considered.

Accepted Answer

A) True 
 B)False

Question 5

Factors Influences that affect the selection of a short-term financing strategy include:

Accepted Answer

A) cost 
B) flexibility 
C) qualitative factors 
D) all the above 
A) cost 
B) flexibility 
C) qualitative factors 
D) all the above

Question 6

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 7

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 8

The factor, unlike the commercial finance company:

Accepted Answer

A) engages in accounts receivable financing 
B) purchases the accounts receivable outright 
C) assumes limited credit risks 
D) is not responsible for the collection of accounts 
A) engages in accounts receivable financing 
B) purchases the accounts receivable outright 
C) assumes limited credit risks 
D) is not responsible for the collection of accounts

Question 9

If a firm chooses to take a cash discount when offered terms of 1/15 net 35, it should

Accepted Answer

A) 	pay on the first day of the discount period. 
B) 	pay on day 15. 
C) 	pay on day 35. 
A) 	pay on the first day of the discount period. 
B) 	pay on day 15. 
C) 	pay on day 35.

Question 10

Which of the following operating characteristics affect a firm's short-term financing strategy?

Accepted Answer

A) industry and company factors 
B) seasonal variation 
C) sales trend 
D) cyclical variations 
E) all the above 
A) industry and company factors 
B) seasonal variation 
C) sales trend 
D) cyclical variations 
E) all the above

Question 11

Advance factoring is where the firm selling its accounts receivable is paid on the normal collection date or net due date of the account.

Accepted Answer

A) True 
 B)False

Question 12

If a firm has positive net working capital, the current ratio is:

Accepted Answer

A) greater than one 
B) less than one 
C) equal to one 
D) not enough information given to tell 
A) greater than one 
B) less than one 
C) equal to one 
D) not enough information given to tell

Question 13

What is the most important overall source of short-term business financing both in the U.S.and worldwide?

Accepted Answer

A) lines of credit 
B) trade credit 
C) notes 
D) commercial paper 
A) lines of credit 
B) trade credit 
C) notes 
D) commercial paper

Question 14

An organization without a bank charter that advances funds to businesses is called a (n):

Accepted Answer

A) credit union 
B) financial services firm 
C) commercial financing company 
D) none of the above 
A) credit union 
B) financial services firm 
C) commercial financing company 
D) none of the above

Question 15

When a bank takes a business' inventory as collateral for additional loans, it:

Accepted Answer

A) places the inventory under bond 
B) transports the inventory to a warehouse not necessarily on bank property 
C) requires insurance and weekly audits of the inventory 
D) usually establishes a field warehouse
Not in the chapter 
A) places the inventory under bond 
B) transports the inventory to a warehouse not necessarily on bank property 
C) requires insurance and weekly audits of the inventory 
D) usually establishes a field warehouse
Not in the chapter

Question 16

In order to borrow $100,000 for a 10% loan on discount basis, the firm will actually have to borrow:

Accepted Answer

A) $110,000 
B) $111,111 
C) $100,000 
D) $90,000 
A) $110,000 
B) $111,111 
C) $100,000 
D) $90,000

Question 17

Manufacturing companies tend to be the largest users of accounts receivable financing.
Not in the chapter

Accepted Answer

A) True 
 B)False

Question 18

Field warehouses are in operation throughout the United States but are concentrated in the central and East coast regions.
Not important

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A) 18.81% 
B) 18.25% 
C) 21.90% 
D) 25.09% 
E) none of the above 
A) 18.81% 
B) 18.25% 
C) 21.90% 
D) 25.09% 
E) none of the above

Question 20

The choice of financing strategy involves a tradeoff between return and risk.

Accepted Answer

A) True 
 B)False

The approximate effective cost (EC) of financing the discount price of trade credit under terms 2/10, net/30 using a 360 day year is:

The prime rate is the interest rate the bank charges its most creditworthy customers.

Which of the following is not an important source of short-term funds to small businesses?

To compute the effective cost of a revolving agreement, the joint effect of interest on borrowed funds and commitment fees must be considered.

Factors Influences that affect the selection of a short-term financing strategy include:

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

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.

The factor, unlike the commercial finance company:

If a firm chooses to take a cash discount when offered terms of 1/15 net 35, it should

Which of the following operating characteristics affect a firm's short-term financing strategy?

Advance factoring is where the firm selling its accounts receivable is paid on the normal collection date or net due date of the account.

If a firm has positive net working capital, the current ratio is:

What is the most important overall source of short-term business financing both in the U.S.and worldwide?

An organization without a bank charter that advances funds to businesses is called a (n):

When a bank takes a business' inventory as collateral for additional loans, it:

In order to borrow $100,000 for a 10% loan on discount basis, the firm will actually have to borrow:

Manufacturing companies tend to be the largest users of accounts receivable financing. Not in the chapter

Field warehouses are in operation throughout the United States but are concentrated in the central and East coast regions. Not important

The choice of financing strategy involves a tradeoff between return and risk.

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

The approximate effective cost (EC) of financing the discount price of trade credit under terms 2/10, net/30 using a 360 day year is:

The prime rate is the interest rate the bank charges its most creditworthy customers.

Which of the following is not an important source of short-term funds to small businesses?

To compute the effective cost of a revolving agreement, the joint effect of interest on borrowed funds and commitment fees must be considered.

Factors Influences that affect the selection of a short-term financing strategy include:

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

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.

The factor, unlike the commercial finance company:

If a firm chooses to take a cash discount when offered terms of 1/15 net 35, it should

Which of the following operating characteristics affect a firm's short-term financing strategy?

Advance factoring is where the firm selling its accounts receivable is paid on the normal collection date or net due date of the account.

If a firm has positive net working capital, the current ratio is:

What is the most important overall source of short-term business financing both in the U.S.and worldwide?

An organization without a bank charter that advances funds to businesses is called a (n):

When a bank takes a business' inventory as collateral for additional loans, it:

In order to borrow $100,000 for a 10% loan on discount basis, the firm will actually have to borrow:

Manufacturing companies tend to be the largest users of accounts receivable financing. Not in the chapter

Field warehouses are in operation throughout the United States but are concentrated in the central and East coast regions. Not important

The choice of financing strategy involves a tradeoff between return and risk.

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