Exam 16: Current Liabilities Management

Lines of credit are non-guaranteed loans that specify the maximum amount that a firm can owe the bank at any point in time.

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

Pledges of accounts receivable are normally made on a nonnotification basis, meaning that a customer whose account has been pledged as collateral is not notified.

The cost of giving up a cash discount under the terms of sale 1/10 net 60 (assume a 360-day year) is ________.

A(n) ________ effectively raises the interest cost to the borrower on a line of credit.

________ are liabilities for services received for which payment has yet to be made.

The prime rate of interest fluctuates with ________.

In pledging accounts receivable, the percentage advanced against the adjusted collateral is determined by the borrower based on its overall evaluation on the quality of the acceptable receivables and the expected cost of the liquidation.

Because the bank guarantees the availability of funds, a commitment fee is normally charged on a simple line of credit agreement.

Lenders of secured short-term funds prefer collateral ________.

For firms that are able to raise funds through the sale of commercial paper, it is generally cheaper than borrowing from a commercial bank.

In a revolving credit agreement, the firm pays interest on ________.

Spontaneous unsecured financing has a specific interest cost associated with it that can be at a fixed or floating rate.

If one borrows $1,000 at 8 percent interest on a discount basis, the effective rate of interest is 7.2 percent.

Revolving credit agreements are guaranteed loans that specify the maximum amount that a firm can owe the bank at any point in time.

A firm has directly placed an issue of commercial paper that has a maturity of 60 days. The issue sold for $980,000 and has an annual interest rate of 12.24 percent. The value of the commercial paper at maturity is ________ (assume 360 days in a year).

The effective interest rate generally is ________.

Pledges of accounts receivable are made on ________ basis, respectively.

The pledging cost of accounts receivable is normally 2 to 5 percent above the prime rate.

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