Question 1

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 2

Pledging accounts receivable has all of the following characteristics except:

Accepted Answer

A) money is advanced to the borrower as a loan against accounts receivable 
B) accounts receivable balances are removed from the balance sheet 
C) the customer payment is made to the firm, which then submits the payment to the bank 
D) all of the above are characteristics of pledging 
A) money is advanced to the borrower as a loan against accounts receivable 
B) accounts receivable balances are removed from the balance sheet 
C) the customer payment is made to the firm, which then submits the payment to the bank 
D) all of the above are characteristics of pledging

Question 3

Maturity 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 4

-The effective annual interest rate on a loan in which a company borrows $1,000,000 for one year at 8 percent and requires a compensating balance of 10 percent is:

Accepted Answer

A) 79.5% 
B) 8.5% 
C) 8.9% 
D) 7.918% 
E) none of the above 
A) 79.5% 
B) 8.5% 
C) 8.9% 
D) 7.918% 
E) none of the above

Question 5

The Small Business Administration:

Accepted Answer

A) lends exclusively to small business investment companies that in turn lend to small businesses 
B) makes only working capital loans 
C) lends to businesses with reasonable prospects of repayment but which cannot obtain credit through private channels 
D) none of the above 
A) lends exclusively to small business investment companies that in turn lend to small businesses 
B) makes only working capital loans 
C) lends to businesses with reasonable prospects of repayment but which cannot obtain credit through private channels 
D) none of the above

Question 6

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

Accepted Answer

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

Question 7

The most important form of short-term business financing is:

Accepted Answer

A) a revolving credit agreement 
B) accounts-receivable financing 
C) inventory loans 
D) trade credit 
A) a revolving credit agreement 
B) accounts-receivable financing 
C) inventory loans 
D) trade credit

Question 8

The ________ is the lowest rate of interest charged on business loans to the best business borrowers by the nation's leading banks.

Accepted Answer

A) prime rate 
B) commercial paper rate 
C) federal funds rate 
D) treasury bill rate 
E) none of the above 
A) prime rate 
B) commercial paper rate 
C) federal funds rate 
D) treasury bill rate 
E) none of the above

Question 9

Which of the following are not typical of an accounts receivable loan arrangement?

Accepted Answer

A) basic interest charge 
B) compensating balance 
C) fee to cover extra work need for such a loan 
D) all the above are typical of accounts receivable loans 
A) basic interest charge 
B) compensating balance 
C) fee to cover extra work need for such a loan 
D) all the above are typical of accounts receivable loans

Question 10

Short-term financing may come in the form of trade credit extended between businesses.

Accepted Answer

A) True 
 B)False

Question 11

Short-term financing sources include bank loans, trade credit, and commercial paper.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following short-term sources of funds is available only to the financially strongest concerns?

Accepted Answer

A) trade credit 
B) commercial bank loans 
C) finance company loans 
D) commercial paper 
A) trade credit 
B) commercial bank loans 
C) finance company loans 
D) commercial paper

Question 13

A trust receipt is a claim against a customer's inventory when the individual items are indistinguishable.

Accepted Answer

A) True 
 B)False

Question 14

Commercial finance companies:

Accepted Answer

A) make riskier unsecured business loans but charge higher interest rates 
B) specialize in loans secured by inventories and real estate 
C) concentrate their lending activity to firms pledging the notes receivable of their customers 
D) are primarily interested in loans secured by a business customer's accounts receivable and inventories 
A) make riskier unsecured business loans but charge higher interest rates 
B) specialize in loans secured by inventories and real estate 
C) concentrate their lending activity to firms pledging the notes receivable of their customers 
D) are primarily interested in loans secured by a business customer's accounts receivable and inventories

Question 15

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 discount 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 discount 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 16

The most important reason for directly issuing or using commercial paper dealers is:

Accepted Answer

A) the cost of borrowing is generally less than regular bank rates 
B) it's a profitable alternative to the purchase of Treasury bills 
C) the avoidance of compensating balances 
D) the convenience and profitability 
A) the cost of borrowing is generally less than regular bank rates 
B) it's a profitable alternative to the purchase of Treasury bills 
C) the avoidance of compensating balances 
D) the convenience and profitability

Question 17

The effective annual interest rate on a one-year, $1,000,000, 12% discount loan that requires a 10% compensating balance is

Accepted Answer

A) 	22%. 
B) 	13.3%. 
C) 	13.6%. 
D) 	12.0%. 
E) 	none of the above 
A) 	22%. 
B) 	13.3%. 
C) 	13.6%. 
D) 	12.0%. 
E) 	none of the above

Question 18

Commercial paper issued by large U.S.corporations is backed by:

Accepted Answer

A) accounts receivable 
B) inventories 
C) credit quality of the issuer 
D) fixed assets 
A) accounts receivable 
B) inventories 
C) credit quality of the issuer 
D) fixed assets

Question 19

If total assets are $100,000, fixed assets are $30,000, current liabilities are $20,000, then net working capital is:

Accepted Answer

A) $100,000 
B) $70,000 
C) $50,000 
D) $0 
A) $100,000 
B) $70,000 
C) $50,000 
D) $0

Question 20

In order to borrow $100,000 for a 5% loan on a discount loan basis with a 5% compensating balance; the firm will actually have to borrow:

Accepted Answer

A) $110105,263000 
B) $111,111 
C) $100,000 
D) $90,000 
A) $110105,263000 
B) $111,111 
C) $100,000 
D) $90,000

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

Pledging accounts receivable has all of the following characteristics except:

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

-The effective annual interest rate on a loan in which a company borrows $1,000,000 for one year at 8 percent and requires a compensating balance of 10 percent is:

The Small Business Administration:

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

The most important form of short-term business financing is:

The ________ is the lowest rate of interest charged on business loans to the best business borrowers by the nation's leading banks.

Which of the following are not typical of an accounts receivable loan arrangement?

Short-term financing may come in the form of trade credit extended between businesses.

Short-term financing sources include bank loans, trade credit, and commercial paper.

Which of the following short-term sources of funds is available only to the financially strongest concerns?

A trust receipt is a claim against a customer's inventory when the individual items are indistinguishable.

Commercial finance companies:

For bank loans, the effective interest rate is generally

The most important reason for directly issuing or using commercial paper dealers is:

The effective annual interest rate on a one-year, $1,000,000, 12% discount loan that requires a 10% compensating balance is

Commercial paper issued by large U.S.corporations is backed by:

If total assets are $100,000, fixed assets are $30,000, current liabilities are $20,000, then net working capital is:

In order to borrow $100,000 for a 5% loan on a discount loan basis with a 5% compensating balance; the firm will actually have to borrow:

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

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Exam 16: Short-Term Business Financing

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

Pledging accounts receivable has all of the following characteristics except:

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

-The effective annual interest rate on a loan in which a company borrows $1,000,000 for one year at 8 percent and requires a compensating balance of 10 percent is:

The Small Business Administration:

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

The most important form of short-term business financing is:

The ________ is the lowest rate of interest charged on business loans to the best business borrowers by the nation's leading banks.

Which of the following are not typical of an accounts receivable loan arrangement?

Short-term financing may come in the form of trade credit extended between businesses.

Short-term financing sources include bank loans, trade credit, and commercial paper.

Which of the following short-term sources of funds is available only to the financially strongest concerns?

A trust receipt is a claim against a customer's inventory when the individual items are indistinguishable.

Commercial finance companies:

For bank loans, the effective interest rate is generally

The most important reason for directly issuing or using commercial paper dealers is:

The effective annual interest rate on a one-year, $1,000,000, 12% discount loan that requires a 10% compensating balance is

Commercial paper issued by large U.S.corporations is backed by:

If total assets are $100,000, fixed assets are $30,000, current liabilities are $20,000, then net working capital is:

In order to borrow $100,000 for a 5% loan on a discount loan basis with a 5% compensating balance; the firm will actually have to borrow:

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