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Home
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Short Term Financing
Short Term Financing MCQs
?
Which one of the following is a spontaneous source of financing?
Notes payable.
Long-term debt.
Prepaid interest.
Trade credit.
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Which one of the following provides a spontaneous source of financing for a firm?
Accounts payable.
Mortgage bonds.
Accounts receivable.
Debentures.
?
Which one of the following statements about trade credit is correct? Trade credit is
Not an important source of financing for small firms.
A source of long-term financing to the seller.
Subject to risk of buyer default.
Usually an inexpensive source of external financing.
?
Which one of the following financial instruments generally provides the largest source of short-term credit for small firms?
Installment loans.
Commercial paper.
Trade credit.
Bankers’ acceptances.
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Richardson Supply has a $100 invoice with payment terms of 2/10, net 60. Richardson can either take the discount or place the funds in a money market ...
12.2%
8.7%
6.4%
6.2%
?
Which one of the following statements concerning cash discounts is correct?
The cost of not taking a 2/10, net 30 cash discount is usually less than the prime rate.
With trade terms of 2/15, net 60, if the discount is not taken, the buyer receives 45 days of free credit.
The cost of not taking the discount is higher for terms of 2/10, net 60 than for 2/10, net 30.
The cost of not taking a cash discount is generally higher than the cost of a bank loan.
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When a company offers credit terms of 3/10, net 30, the annual interest cost based on a 360-day year is
36.7%
24.5%
37.1%
55.6%
?
Maple Motors buys axles in order to produce automobiles. Maple carries an average credit balance of $25,000,000 with its axle supplier. The axle suppl...
14.4%
14.5%
24.0%
24.2%
?
Garo Company, a retail store, is considering forgoing sales discounts to delay using its cash. Supplier credit terms are 2/10, net 30. Assuming a 360-...
24.0%
24.5%
36.0%
36.7%
?
When a company offers credit terms of 2/10, net 30, the annual interest cost, based on a 360-day year, is
24.0%
35.3%
36.0%
36.7%
?
The high cost of short-term financing has recently caused a company to reevaluate the terms of credit it extends to its customers. The current policy ...
2%
5%
7%
8%
?
Which one of the following responses is not an advantage to a corporation that uses the commercial paper market for short-term financing?
This market provides more funds at lower rates than other methods provide.
The borrower avoids the expense of maintaining a compensating balance with a commercial bank.
There are no restrictions as to the type of corporation that can enter into this market.
This market provides a broad distribution for borrowing.
?
Commercial paper
Has a maturity date greater than 1 year.
Is usually sold only through investment banking dealers.
Ordinarily does not have an active secondary market.
Has an interest rate lower than Treasury bills.
?
What is the effective annual interest rate for a 1-year $100 million loan with a stated interest rate of 8.00%, if the lending bank requires a non-int...
7.62%
8.00%
8.42%
13.00%
?
The following forms of short-term borrowing are available to a firm: •Floating lien •Factoring •Revolving credit •Chattel mortgages •Ba...
Floating lien, revolving credit, chattel mortgage, and commercial paper.
Factoring, chattel mortgage, bankers’ acceptances, and line of credit.
Floating lien, chattel mortgage, bankers’ acceptances, and line of credit.
Revolving credit, bankers’ acceptances, line of credit, and commercial paper.
?
Short-term, unsecured promissory notes issued by large firms are known as
Agency securities.
Bankers’ acceptances.
Commercial paper.
Repurchase agreements.
?
With respect to the use of commercial paper by an industrial firm, which one of the following statements is most likely to be true?
The commercial paper is issued through a bank.
The commercial paper has a maturity of 60-270 days.
The commercial paper is secured by the issuer’s assets.
The commercial paper issuer is a small company.
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Corbin, Inc., can issue 3-month commercial paper with a face value of $1,000,000 for $980,000. Transaction costs will be $1,200. The effective annuali...
8.16%
8.66%
8.00%
2.00%
?
Randy, Inc., can issue 3-month commercial paper with a face value of $1,500,000 for $1,450,000. Transaction costs will be $1,500. The effective annual...
3.45%
3.56%
14.22%
13.79%
?
Morton Company needs to pay a supplier’s invoice of $50,000 and wants to take a cash discount of 2/10, net 40. The firm can borrow the money for 30 ...
$55,000
$55,056
$55,556
$54,444
?
Morton Company needs to pay a supplier’s invoice of $50,000 and wants to take a cash discount of 2/10, net 40. The firm can borrow the money for 30 ...
12.00%
13.33%
13.20%
13.48%
?
Skilantic Company needs to pay a supplier’s invoice of $60,000 and wants to take a cash discount of 2/10, net 40. The firm can borrow the money for ...
$60,000
$65,934
$64,615
$58,800
?
Skilantic Company needs to pay a supplier’s invoice of $60,000 and wants to take a cash discount of 2/10, net 40. The firm can borrow the money for ...
11%
10%
12.09%
9.90%
?
Skilantic Company needs to pay a supplier’s invoice of $60,000 and wants to take a cash discount of 2/10, net 40. The firm can borrow the money for ...
2%
24%
24.49%
36.73%
?
A company has just borrowed $2 million from a bank. The stated rate of interest is 10%. If the loan is discounted and is repayable in 1 year, the effe...
8.89%
9.09%
10.00%
11.11%
?
On January 1, Scott Corporation received a $300,000 line of credit at an interest rate of 12% from Main Street Bank and drew down the entire amount on...
11.00%
12.00%
12.94%
14.12%
?
Hagar Company’s bank requires a compensating balance of 20 on a $100,000 loan. If the stated interest on the loan is 7%, what is the effective cost ...
5.83%
7.00%
8.40%
8.75%
?
A company obtained a short-term bank loan of $250,000 at an annual interest rate of 6%. As a condition of the loan, the company is required to maintai...
6.44%
7.00%
5.80%
6.66%
?
A company obtained a short-term bank loan of $500,000 at an annual interest rate of 8%. As a condition of the loan, the company is required to maintai...
7.77%
8.22%
9.25%
8.56%
?
A manufacturing firm wants to obtain a short-term loan and has approached several lending institutions. All of the potential lenders are offering the ...
Simple interest, no compensating balance.
Discount interest, no compensating balance.
Simple interest, 20% compensating balance required.
Discount interest, 20% compensating balance required.
?
The prime lending rate of commercial banks is an announced rate and is often understated from the viewpoint of even the most credit-worthy firms. Whic...
A floating rate for the loan period.
A covenant that restricts the issuance of any new unsecured bonds during the existence of the loan.
The imposition of a compensating balance with an absolute minimum that cannot be met by current transaction balances.
The absence of a charge for any unused portion in the line of credit.
?
The prime rate is the
Size of the commitment fee on a commercial bank loan.
Effective cost of a commercial bank loan.
Effective cost of commercial paper.
Rate charged on business loans to borrowers with high credit ratings.
?
A small retail business would most likely finance its merchandise inventory with
Commercial paper.
A terminal warehouse receipt loan.
A line of credit.
A chattel mortgage.
?
If a firm borrows $500,000 at 10% and is required to maintain $50,000 as a minimum compensating balance at the bank, what is the effective interest ra...
10.0%
11.1%
9.1%
12.2%
?
The Dixon Corporation has an outstanding 1-year bank loan of $300,000 at a stated interest rate of 8%. In addition, Dixon is required to maintain a 20...
6.4%
8.0%
20%
10.0%
?
Elan Corporation is considering borrowing $100,000 from a bank for 1 year at a stated interest rate of 9%. What is the effective interest rate to Elan...
8.10%
9.00%
9.81%
9.89%
?
The Altmane Corporation was recently quoted terms on a commercial bank loan of 7% discounted interest with a 20% compensating balance. The term of the...
8.75%
9.41%
7.53%
9.59%
?
The Flesher Corporation was recently quoted terms on a commercial bank loan of 6% discounted interest with a 22% compensating balance. The term of the...
6.00%
6.38%
7.69%
8.33%
?
The Red Company has a revolving line of credit of $300,000 with a 1-year maturity. The terms call for a 6% interest rate and a 1/2% commitment fee on ...
$6,000
$6,500
$7,000
$7,500
?
An example of secured short-term financing is
Commercial paper.
A warehouse receipt.
A revolving credit agreement.
Line of credit.
?
A firm that often factors its accounts receivable has an agreement with its finance company that requires the firm to maintain a 6% reserve and charge...
$93,000
$90,000
$90,675
$83,700
?
A firm that often factors its accounts receivable has an agreement with its finance company that requires the firm to maintain a 6% reserve and charge...
$92,600
$96,135
$90,285
$85,000
?
The Frame Supply Company has just acquired a large account and needs to increase its working capital by $100,000. The controller of the company has id...
9.0
12.0
13.2
21.0
?
The Frame Supply Company has just acquired a large account and needs to increase its working capital by $100,000. The controller of the company has id...
9.1%
10.0%
18.2%
20.0%
?
The Frame Supply Company has just acquired a large account and needs to increase its working capital by $100,000. The controller of the company has id...
20.0%
25.0%
40.0%
50.0%
?
A company enters into an agreement with a firm that will factor the company’s accounts receivable. The factor agrees to buy the company’s receivab...
10.0%
12.0%
14.0%
17.5%
?
The chief financial officer of Smith Glass, Inc., follows the policy of matching the maturity of assets with the maturity of financing. The implicatio...
The seasonal expansion of cash, receivables, and inventory should be financed by short-term debt, such as vendor payables and bank debt.
The minimum level of cash, receivables, and inventory required to stay in business can be considered permanent and financed with long-term debt or equity.
Cash, receivables, and inventory should be financed with long-term debt or equity.
Long-term assets, like plant and equipment, should be financed with long-term debt or equity.
?
A manufacturer with seasonal sales would be most likely to obtain which one of the following types of loans from a commercial bank to finance the need...
Transaction loan.
Insurance company term loan.
Installment loan.
Unsecured short-term term loan.
?
Which of the following financing vehicles would a commercial bank be likely to offer to its customers? I. Discounted notes II. Term loans III. Line...
I and II.
III and IV
I, III, and IV.
I, II, III, and IV.
?
On June 30 of this year, Mega Bank granted Lang Corporation a $20 million 5-year term loan with a floating rate of 200 basis points over Treasury Bill...
$1,800,000
$2,780,000
$2,800,000
$3,170,000
?
Global Manufacturing Company has a cost of borrowing of 12 . One of the firm’s suppliers has just offered new terms for purchases. The old terms wer...
Yes, the cost of not taking the trade discount exceeds the cost of borrowing.
No, the cost of trade credit exceeds the cost of borrowing.
No, the use of debt should be avoided if possible.
The answer depends on whether the firm borrows money.
?
Dexter Products receives $25,000 worth of merchandise from its major supplier on the 15th and 30th of each month. The goods are sold on terms of 1/15,...
$(950)
$1,050
$7,050
$2,250
?
Dudley Products is given terms of 2/10, net 45 by its suppliers. If Dudley forgoes the cash discount and instead pays the suppliers 5 days after the n...
18.0%
18.4%
21.0%
24.5%
?
A firm is given payment terms of 3/10, net 90 and forgoes the discount and pays on the net due date. Using a 360-day year and ignoring the effects of ...
12.0%
12.4%
13.5%
13.9%
?
Gates, Inc., has been offered a 1-year loan by its commercial bank. The instrument is a discounted note with a stated interest rate of 9%. If Gates ne...
$275,229
$327,000
$300,000
$329,670
?
Lang National Bank offered a 1-year loan to a commercial customer. The instrument is a discounted note with a nominal rate of 12%. What is the effecti...
10.71%
12.00%
13.20%
13.64%
?
Keller Products needs $150,000 of additional funds over the next year in order to satisfy a significant increase in demand. A commercial bank has offe...
$130,435
$172,500
$176,471
$194,805
?
Approximately what amount of compensating balance would be required for a stated interest rate of 10% to equal an effective interest rate of 10.31% on...
$310,000
$3,000,000
$3,100,000
Not enough information is given.
?
The effective annual interest rate to the borrower of a $100,000 1-year loan with a stated rate of 7% and a 20% compensating balance is
7.0%
8.4%
8.75%
13.0%
?
Which one of the following could be used to provide security to the lender in an inventory financing situation?
Trust receipt.
Factoring.
Lockbox.
Underwriting.
?
Topka, Inc., needs to borrow $500,000 to meet its working capital requirements for next year. The Merchant Bank has offered the company a 9.5% simple ...
11.02%
11.31%
12.75%
19.00%
?
Buckeye Lawn Maintenance is a seasonal business and has decided to finance seasonal variations in current assets with short-term debt while financing ...
Spontaneous financing.
Hedging.
Capital rationing.
Leveraged financing.
?
Which one of the following is not a form of short-term credit?
Bankers’ acceptances.
Commercial paper.
Accrued wages.
Corporate bonds.
?
A person invested Rs. 100000 in a bank FDR @ 6% p.a. for 1 year. If interest is compounded on half yearly basis, the amount payable shall be ...... ...
109060
100960
103090
106090
?
Ranjit borrowed an amount of Rs. 50000 for 8 years @ 18% roi. What shall be monthly payment?
986
968
896
869
