Question 1

An organization that engages in accounts-receivable financing by purchasing the accounts outright is referred to as a:

Accepted Answer

A) field warehouse firm 
B) commercial finance company 
C) factor 
D) commercial paper house

Question 2

An owner of a business may not assign life insurance as collateral for a short-term loan.

Accepted Answer

A) True 
 B)False

Question 3

In general,

Accepted Answer

A) a revolving credit agreement is more expensive but less risky to the firm than a line of credit. 
B) a revolving credit agreement is more expensive and more risky to the firm than a line of credit. 
C) a revolving credit agreement is less expensive and less risky to the firm than a line of credit. 
D) a revolving credit agreement is less expensive but more risky to the firm than a line of credit. 
E) none of the above

Question 4

The factoring of receivables:

Accepted Answer

A) had its origins in the textile industry but now extends over a wide range of industriestypically has the factor becoming the firm's credit department 
B) is especially suited to the heavy durable goods industries 
C) has now been largely replaced with other types of financing 
D) places special risk on the firm whose receivables are being factored

Question 5

Which of the following is a characteristic of commercial paper dealers?

Accepted Answer

A) provide greater convenience for their clients than bank borrowing but at rates somewhat higher than bank rates 
B) set rates at the beginning of the month 
C) recall notes that have been placed with investors if rates change dramatically 
D) none of the above is a characteristic of commercial paper dealers

Question 6

Large U.S.corporations of high credit quality can issue or sell short-term promissory notes called:

Accepted Answer

A) revolving credit agreements 
B) commercial paper 
C) trade credit 
D) inventory loans

Question 7

The purchaser may deduct 2% from the purchase price if payment is made within 10 days; but if not paid within 10 days, the net amount of the purchase is due within 30 days.The sale is made on what terms?

Accepted Answer

A) 10/30, net/2 
B) 2/10, net/30 
C) 2/30, net/10 
D) 10/2, net/30

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Bank loans on which interest is paid up front in advance are called: None of the above clone of prior item

Accepted Answer

A) front loaders. 
B) build-up loans 
C) advance interest loans. 
D) revolving credit agreements. 
E) none of the above

Question 10

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 premium 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 11

Firms using maturity matching will have current ratios equal to 1.0.

Accepted Answer

A) True 
 B)False

Question 12

Using the conservative approach for financing a firm's assets, long term financing would be used only to finance fixed assets, while short term financing would be used to finance current assets including seasonal fluctuations.

Accepted Answer

A) True 
 B)False

Question 13

Service industries tend to have larger proportions of fixed assets to current assets.

Accepted Answer

A) True 
 B)False

Question 14

When accounts receivable are pledged: money is advanced to the borrower as a loan against accounts receivable; accounts receivable balances remain on the balance sheet; the customer payment is made to the firm, which then submits the payment to the bank; and interest is charged on the loan.

Accepted Answer

A) True 
 B)False

Question 15

The prime rate offered by commercial banks is their _____________ rate to their ______________ quality business customers.

Accepted Answer

A) highest, highest 
B) lowest, lowest 
C) lowest, highest 
D) highest, lowest

Question 16

Firms who wish to obtain short-term secured loans generally have two major current assets available as collateral in the form of:

Accepted Answer

A) cash and marketable securities 
B) receivables and inventory 
C) receivables and factoring 
D) inventory and floor planning

Question 17

Under ___________________ a factor pays the firm for its receivables before the account due date.

Accepted Answer

A) reverse factoring 
B) maturity factoring 
C) advance factoring 
D) nonrecourse factoring

Question 18

Factoring 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 factor 
D) all of the above are characteristics of pledging

Question 19

A discounted loan is one in which the borrower receives the principal plus the interest at the time the loan is made.

Accepted Answer

A) True 
 B)False

Question 20

Spontaneous financing refers to:

Accepted Answer

A) financing provided by accounts payable and accrued liabilities 
B) line of credit agreements 
C) revolving credit agreements 
D) none of the above

Exam 16: Short-Term Business Financing

An organization that engages in accounts-receivable financing by purchasing the accounts outright is referred to as a:

An owner of a business may not assign life insurance as collateral for a short-term loan.

In general,

The factoring of receivables:

Which of the following is a characteristic of commercial paper dealers?

Large U.S.corporations of high credit quality can issue or sell short-term promissory notes called:

The purchaser may deduct 2% from the purchase price if payment is made within 10 days; but if not paid within 10 days, the net amount of the purchase is due within 30 days.The sale is made on what terms?

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

Bank loans on which interest is paid up front in advance are called: None of the above clone of prior item

For bank loans, the effective interest rate is generally

Firms using maturity matching will have current ratios equal to 1.0.

Using the conservative approach for financing a firm's assets, long term financing would be used only to finance fixed assets, while short term financing would be used to finance current assets including seasonal fluctuations.

Service industries tend to have larger proportions of fixed assets to current assets.

When accounts receivable are pledged: money is advanced to the borrower as a loan against accounts receivable; accounts receivable balances remain on the balance sheet; the customer payment is made to the firm, which then submits the payment to the bank; and interest is charged on the loan.

The prime rate offered by commercial banks is their _ rate to their __ quality business customers.

Firms who wish to obtain short-term secured loans generally have two major current assets available as collateral in the form of:

Under ___________________ a factor pays the firm for its receivables before the account due date.

Factoring accounts receivable has all of the following characteristics except:

A discounted loan is one in which the borrower receives the principal plus the interest at the time the loan is made.

Spontaneous financing refers to: