Exam 16: Current Liabilities Management

Operating-change restrictions gives the bank a right to revoke the line of credit if any major changes occur in a firm's financial condition or operations.

A terminal warehouse is ________.

Global Logistics purchased a new machine on October 20th, 2014 for $1,000,000 on credit. The supplier has offered A&A terms of 2/10, net 45. The current interest rate the bank is offering is 16 percent. (a) Compute the cost of giving up cash discount. (b) Should the firm take or give up the cash discount? (c) What is the effective rate of interest if the firm decides to take the cash discount by borrowing money on a discount basis?

Tangshan Mining borrowed $10,000 for one year under a line of credit with a stated interest rate of 8 percent and a 10 percent compensating balance. Thus, the firm keeps a balance of about $800 in its checking account.

Appropriate collateral for a loan secured under a floating inventory lien is ________.

One advantage of factoring accounts receivable is the ability it gives a firm to turn accounts receivable immediately into cash without having to worry about repayment.

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

Tangshan Mining issued $10,000 of commercial paper for $9,925 for 60 days. Based on this information, the effective annual rate of interest on the commercial paper would be about 10 percent.

Commercial paper is a form of financing that consists of short-term, secured promissory notes issued by firms with a high credit standing.

________ involves the sale of accounts receivable.

The risk-free rate is the lowest rate of interest charged by the nation's leading banks on business loans to their most important and reliable business borrowers.

Inventory is more attractive than accounts receivable as a short-term collateral since it normally has a market value greater than its book value, which is used to establish its value as collateral.

It would be a financially sound decision to pay employees once every two weeks rather than once a month.

The primary source of secured short-term loans to businesses are ________.

A ________ agreement normally states the exact conditions and procedures for the purchase of an account.

Accruals and accounts payable are ________.

A large portion of the commercial paper is issued by ________.

Ashley's Delivery Service is analyzing the credit terms of each of three suppliers, A, B, and C. (a) Determine the approximate cost of giving up the cash discount (assume a 360-day year). (b) Assuming the firm needs short-term financing, recommend whether or not the firm should give up the cash discount or borrow from the bank at 10 percent annual interest. Evaluate each supplier separately.

A single-payment note generally has a maturity of ________.

Cull Incorporated recently borrowed $250,000 from Century Bank when the prime rate was 4%. The loan was for 90 days with interest to be paid at the end of the period with a rate fixed at 1.5% above the prime rate. What is the total interest paid on this loan and what is the effective annual rate? (Assume a 365 day year.)