Exam 16: Current Liabilities Management

Self-liquidating loans are mainly invested in productive assets (i.e., fixed assets) which provide the mechanism through which the loan is repaid.

Commercial finance companies are lending institutions that make only unsecured loans-both short-term and long-term-to businesses.

A loan that is usually a one-time loan made to a borrower who needs funds for a specific purpose for a short period is called a ________.

An appropriate collateral for a secured short-term loan is ________.

Spontaneous liabilities such as accounts payable and notes payable represent a source of financing that arise from the normal course of business.

A firm has a line of credit and borrows $25,000 at 9 percent interest for 180 days or half a year. What is the effective rate of interest on this loan if the interest is paid in advance?

Tangshan Mining borrowed $100,000 for one year under a revolving credit agreement that authorized and guaranteed the firm access to $200,000. The revolving credit agreement had a stated interest rate of 7.5 percent and charged the firm a 1 percent commitment fee on the unused portion of the agreement. Based on this information, the effective annual interest rate on the loan is ________.

________ ensure that money lent under a line of credit agreement is actually being used to finance seasonal needs.

Hayley's Theatrical Supply is in the process of negotiating a line of credit with two local banks. The prime rate is currently 8 percent. The terms follow: (a) Calculate the effective interest rate of both banks. (b) Recommend which bank's line of credit Hayley's Theatrical Supply should accept.

The percentage advanced by a lender constitutes the principal of a secured loan and varies according to the type and liquidity of the collateral.

A single-payment note is a secured fund which can be obtained from a commercial bank when a borrower needs additional funds for a short period.

Spontaneous liabilities such as accounts payable and accruals represent a use of financing that arise from the normal course of business.

Factoring accounts receivable is relatively an expensive source of unsecured short-term funds.

A fixed-rate loan is a loan whose rate of interest is established at a fixed increment above the prime rate and is allowed to vary above the prime rate only when the prime rate varies until maturity.

The effective interest rate for a discount loan is greater than the loan's stated interest rate.

In doing business in foreign countries, financing operations in the local market not only improves the company's business ties to the host community but also minimizes exchange rate risk.

Tina's Apple Company would like to manufacture and market a new packaging. Tina's has sold an issue of commercial paper for $1,500,000 and maturity of 90 days to finance the new project. Compute the annual interest rate on the issue of commercial paper if the value of the commercial paper at maturity is $1,650,000 (assuming 360 days in a year).

Commercial paper is ________.

The risk to a U.S. importer with foreign-currency-denominated accounts payable is that the dollar will depreciate.

A floating inventory lien is most attractive when the firm has a stable level of inventory that consists of a diversified group of relatively inexpensive merchandise.