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Exam 15: Current Liabilities Management

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Question 81

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Under a line of credit agreement,a bank may require an annual cleanup,which means that the borrower must pay off all its outstanding debts to all its operational creditors for a certain number of days during the year.

A) True
B) False

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Question 82

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Secured short-term financing has specific assets pledged as collateral.

A) True
B) False

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Question 83

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

A ________ is an agreement between a commercial bank and a business that states the maximum amount of unsecured short-term borrowing the bank will make available to the firm over a given period of time,provided sufficient funds are available.

Short-term,self-liquidating loans are intended to ________.

A discount loan is a loan on which interest is paid in advance by deducting it from the loan so that the borrower actually receives less money than is requested.

Credit terms 2/10,net 30 means ________.

With a floating-rate note,the interest rate on the note changes ________.

The interest paid by the issuer of commercial paper is determined by the size of the discount and the length of time to maturity.

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

Notes payable are either spontaneous secured or spontaneous unsecured financing and result from the normal operations of a firm.

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

________ involves the sale of accounts receivable.

A firm arranges a discount loan at a 12 percent interest rate,and borrows $100,000 for one year.The stated interest rate is ________ and the effective interest rate is ________.

Under the floating inventory lien,the borrower is free to sell the merchandise and is expected to remit the amount lent against each item,along with accrued interest,to the lender immediately after the sale.The lender then releases the lien on the appropriate item.

XYZ Corporation borrowed $100,000 for six months from the bank.The rate is prime plus 2 percent.The prime rate was 8.5 percent at the beginning of the loan and changed to 9 percent after two months.This was the only change.How much interest must XYZ corporation pay?

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.

In giving up a cash discount,the amount of the discount that is given up is the interest being paid by a firm to keep its money by delaying payment for a number of days.

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

________ are the major source of unsecured short-term financing for business firms.