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Chapter 11

This document contains 11 multiple choice questions and 10 true/false questions about short-term financing terms and options. The questions cover topics such as COD terms, trade credit terms like "2/15, net 30", types of short-term loans, collateral used to secure loans, and costs associated with different financing arrangements. The answers to all the questions are provided at the end.

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Faizan Ch
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Download as DOC, PDF, TXT or read online on Scribd
341 views

Chapter 11

This document contains 11 multiple choice questions and 10 true/false questions about short-term financing terms and options. The questions cover topics such as COD terms, trade credit terms like "2/15, net 30", types of short-term loans, collateral used to secure loans, and costs associated with different financing arrangements. The answers to all the questions are provided at the end.

Uploaded by

Faizan Ch
Copyright
© © All Rights Reserved
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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Ijaz Tahir M.Com & M.

A (Econ)

Chapter 11
Short-Term Financing
Multiple choice questions
Q:1

Q: 2
be:

Q:3

Under
a.
b.
c.
d.

COD terms, the seller:


extends credit to the buyer on open account.
extends credit to the buyer subject to bank approval.
requires the buyer to make partial payment at fixed intervals.
bears the risk of the buyer's refusing the goods shipped.

The type of business most likely to use trust receipt financing would
a.
b.
c.
d.

a forest products company.


an oil refinery.
an automobile dealership.
a grocery store chain.

The trade terms "2/15, net 30" indicate that:


a. a 2% discount is offered if payment is made within 15 days.
b. a 15% discount is offered if payment is made within 30 days.
c. a 2% discount is offered if payment is made within 30 days.
d. a 30% discount is offered if payment is made within 15 days.

Q:4

If credit terms of "2/10, net 40" are offered, the approximate cost of
not taking the discount and paying at the end of the credit period would be
closest to which of the following? (Assume a 365-day year.)
a. 18.6%
b. 24.3%
c. 24.8%
d. 30.0%

Q:5

If a discount date is missed for some reason, when should a rational


manager pay the bill?
a. As soon as possible after the discount date so as to not upset the
supplier.
b. No sooner than six months so as to maximize the use of "free" trade
credit financing.
c. On the final due date.
d. None of the above.

Q:6

If MetroPulse Media receives an invoice for purchases dated 10/21/X5


subject to credit terms of "3/10, net 30 EOM," what is the last possible day
the payment should be made (1) if the discount is taken and (2) if the
discount is not taken?
a. November 1 and November 20, respectively.
b. November 10 and November 20, respectively.
c. November 10 and November 30, respectively.
d. December 10 and December 30, respectively.

Q:7

When a firm needs short-term funds for a specific purpose, the bank
loan will likely be a:
a. compensating balance arrangement.
b. revolving credit agreement.
c. transaction loan.
d. line of credit.

Q:8

Inventory is in the possession of a third party under which of the


following methods?
a. Floating lien
b. Terminal warehouse receipts
c. Chattel mortgage
d. Trust receipts

Q:9

The Houser Company has negotiated a $500,000 revolving credit


agreement with Chitwood National Bank. The agreement calls for an
interest rate of 10% on fund used, a 15% compensating balance, and a
commitment fee of 1% on the unused amount of the credit line. Assuming
that the compensating balance would not otherwise be maintained, the
effective annual interest cost if the firm borrows $200,000 for one year is
closest to
a. 11.5 percent.
b. 15 percent.
c. 26.5 percent.
d. 13.53 percent.

Ijaz Tahir M.Com & M.A (Econ)

Ijaz Tahir M.Com & M.A (Econ)

Q:10

A formal, legal commitment to extend credit up to some maximum


amount over a stated period of time.
a. Letter of credit
b. Revolving credit agreement
c. Line of credit
d. Trade credit

Q:11

is(are)

The type(s) of collateral generally used for a secured short-term loan


.
a. inventory and/or receivables
b. common stock and/or bonds
c. real estate
d. machinery

True or false questions


Q:1 Trade credit is a system of barter or exchange of "credits" instead of cash.

True

False

Q:2 A firm wanting trade credit must pledge collateral.

True

False

Q:3 The most common type of spontaneous financing is a commercial bank loan.

True

False

Q:4 More frequently than not, the effective cost of a secured short-term loan is higher
than the effective cost of an unsecured short-term loan.

True

False

Q:5 As sales increase, labor costs and thus accrued wages generally increase almost
proportionately.

True

False

Q:6 Stretching accounts payable is a cost-free method of financing a business.

True

False

Q:7 Money-market credit and short-term loans are forms of negotiated (or external)
short-term financing.

True

False

Q:8 A cleanup provision is an environmental protection policy commitment often


attached to a bank line of credit.

True

False

Q:9 Accounts payable and inventory are the principal assets used to secure short-term
business loans.

True

False

Q:10 A secured loan provides the lender two sources of loan repayment: the cash-flow
ability of the firm and the collateral value of the security.

True

False

Answers Multiple choice questions: 1- d 2-c 3-a 4-c 5-c 6-c 7-c
8-b 9-d 10-b 11-a
Answers True or false questions: 1-F 2-F 3-F 4 -T 5-T 6-F 7-T
8-F 9-F 10-T

Ijaz Tahir M.Com & M.A (Econ)

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