Deck 16: Short-Term Financing

Question 1

The move from an aggressive financing strategy to a moderate financing strategy should __________ a company's liquidity by increasing the use of ________-term funds.

A)Increase,long
B)Increase,short
C)Decrease,long
D)Decrease,short

Answer 1

A

Question 2

The aggressive financing strategy:

A)Is basically a maturity matching strategy
B)Heavily relies on short-term funds
C)Uses only long-term funds
D)'a' and 'b'
E)'a' and 'c'

Answer 2

D

Question 3

MNO,Inc.paid a total interest of $3,000 on its line of credit borrowings for the year.MNO's average annual borrowings are $30,000.The bank retains $6,000 as a compensating balance.What is the MNO's annual effective rate of interest?

A)8.33%
B)10.00%
C)12.50%
D)30.00%

Answer 3

C

Question 4

Which of the following is NOT correct?

A)Euro CP is not subject to several Securities and Exchange requirements
B)Euro CP issues generally do not require a back up credit facility
C)Euro CP issues do not require name recognition as the rating agencies provide assessment of the default risk
D)Euro CP issues typically have longer maturities than domestic CP

Question 5

Typically,moving from a conservative to a moderate or aggressive financing strategy will result in __________ profitability and in _________ solvency for the company.

A)Lesser,greater
B)greater,lesser
C)lesser,lesser
D)greater,greater

Question 6

The effective cost of commercial paper is 6%,and the effective cost of a bank credit line is also 6%.All other considerations aside,the treasurer should:

A)finance with the commercial paper
B)finance with the bank credit line
C)be indifferent to the commercial paper or the credit line
D)wait for interest rates to change before making a decision

Question 7

Short-term borrowing differs from spontaneous sources in each of the following ways EXCEPT:

A)it is an indirect way of getting funds
B)it has an explicit cost,including a commitment fee at times
C)it must be deliberately acquired by the company
D)it is a direct way of getting funds

Question 8

A company is experiencing rapid build-up in its inventories and receivables.Likely cause(s)for this is (are): I.Sales are declining significantly
II)Inefficient inventory and receivable management
III)It has moved to just-in-time inventory management and shortened its credit period
IV)Sales are growing rapidly

A)I and II
B)II and IV
C)I and III
D)III and IV

Question 9

The conservative financing strategy:

A)Is basically a maturity matching strategy
B)Uses only long-term funds
C)Uses only short-term funds
D)Uses a mix of short-term and long-term funds

Question 10

The minimum level of ongoing inventory and receivables is what is referred to as ______________ current assets.

A)transitory
B)modifiable
C)discretionary
D)permanent

Question 11

The Brooks Company paid total interest of $3,000 on its line of credit borrowings for the year.Also,Brooks paid a $50 commitment fee and borrowed on average $30,000 for the year.Of the $30,000 average borrowings,$6,000 remained in the bank as a compensating balance.What is the Brook's annual effective rate of interest?

A)10.17%
B)11.26%
C)12.50%
D)12.71%
E)13.22%

Question 12

A retailer makes a sale for which the customer pays via a credit card.From the perspective of the retailer,the sale is an example of using:

A)A floating lien
B)A trust receipt
C)Securitization management
D)Factoring with recourse
E)Without recourse factoring

Question 13

A "clean up" is:

A)a periodic payment of all interest a borrower owes to date on a line of credit
B)a period of time over which the lender defers interest to a later date on a borrower's line of credit
C)a period of time over which a company reduces its outstanding balances to zero on order to demonstrate has not become permanent capital
D)the removal of the compensating balance requirement on a line of credit

Question 14

The ______ the buffer that a treasurer decides to use when establishing a line of credit,___________ the effective cost of the credit line.

A)Smaller,the higher
B)larger,the higher
C)change in,has no effect on
D)Smaller,the lower

Question 15

The maximum reliance on short-term financing is found in the ______ financing strategy.

A)Aggressive
B)moderate
C)conservative
D)compensating

Question 16

The ABC Company paid total interest of $2,000 on its line of credit borrowings for the year.ABC paid a $100 commitment fee on an average borrowing of $20,000 for the year.What is ABC's annual effective rate of interest?

A)9.95%
B)10.00%
C)10.50%
D)12.71%