Short Term Financing Paper 2

1

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 is 1/10, net 60. Customers can borrow at the prime rate. Which of the following prime rates would induce the company to change its terms of credit in order to avoid an undesirable extension in its collection of receivables?






2

Which one of the following responses is not an advantage to a corporation that uses the commercial paper market for short-term financing?






3

Commercial paper






4

The following forms of short-term borrowing are available to a firm:
•Floating lien
•Factoring
•Revolving credit
•Chattel mortgages
•Bankers’ acceptances
•Lines of credit
•Commercial paper
The forms of short-term borrowing that are unsecured credit are






5

Short-term, unsecured promissory notes issued by large firms are known as






6

With respect to the use of commercial paper by an industrial firm, which one of the following statements is most likely to be true?






7

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 annualized percentage cost of the financing, based on a 360-day year, will be






8

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 annualized percentage cost of the financing, based on a 360-day year, will be






9

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 days at 12% per annum plus a 10% compensating balance. The amount Morton Company must borrow to pay the supplier within the discount period and cover the compensating balance is






10

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 days at 12% per annum plus a 10% compensating balance. Assuming Morton Company borrows the money on the last day of the discount period and repays it 30 days later, the effective interest rate on the loan is






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