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.

The conservative financing approach is a strategy that attempts to match the maturities of assets with the maturities of the liabilities with which they are financed.

Commercial paper dealers:

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

Tangshan Mining 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, would be ________.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 ________.

Permanent current assets are:

Which is not a risk of short-term financing?

Working capital includes a firm's marketable securities, accounts receivable, inventories, and mortgage debt.

Trade credit is the single most important form of short-term business financing.

Trade credit may be considered the least formal of all forms of financing.

A commercial finance company typically purchases the accounts receivable outright and assumes all credit risks.

A line of credit is also often referred to as a revolving credit agreement.

An aggressive financing plan has a higher financing cost, but with lower risk of not being able to borrow when short-term funds are needed.

Eriez Magnetics purchased goods with a purchase price of $10,000 and credit terms of 2/10 net 30.The firm paid for these goods on the 5th day after the date of sale.The firm must pay ________ for the goods.

In general,

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

An advantage of short-term borrowing is the need for frequent renewals.

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

A factor engages in accounts receivable financing for business by taking accounts receivable as collateral for making short-term loans.

A line of credit is a legal obligation of the bank to provide funds up to the agreed-upon borrowing limit for a period of time.