Chapter 16--Managing Short- - Copy

Chapter 16--Managing Short- - Copy - Chapter 16-Managing...

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Chapter 16--Managing Short-Term Liabilities (Financing) Chapter 16--Managing Short-Term Liabilities (Financing) Student: ___________________________________________________________________________ 1. If a firm is offered credit terms of 2/10, net 30, it is in the firm's financial interest to pay as early during the discount period as possible. True False 2. Trade credit can be separated into two components: free trade credit, which involves credit received after the discount period ends, and costly trade credit, which is the cost of discounts not taken. True False 3. As a rule, managers should try to always use the free component of trade credit but should use the costly component only after comparing its costs to the costs of similar credit from other sources. True False 4. Trade credit is an inexpensive source of short-term financing if no discounts are offered. True False 5. When deciding whether or not to take a trade discount, the cost of borrowing funds should be compared to the cost of trade credit to determine if the cash discount should be taken. True False 6. The calculated cost of trade credit is reduced by paying late. True False 7. The calculated cost of trade credit for a firm that buys on terms of 2/10, net 30, is lower (other things held constant) if the firm pays in 40 days than if it pays in 30 days. True False
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8. One of the disadvantages of not taking trade credit discounts when offered is that the firm's investment in accounts payable rises. True False 9. Trade credit and accrual accounts are always costless sources of spontaneous financing for the firm. True False 10. A firm is said to be extending net trade credit when its accounts receivable are less than its accounts payable. True False 11. When a firm has accounts payable that are greater than the level of its receivables, the firm is actually receiving net trade credit. True False 12. "Stretching" accounts payable is a widely accepted and costless financing technique. True False 13. Short-term financing might be riskier than long-term financing because, during periods of tight credit, the firm might not be able to rollover (renew) its debt. True False 14. One of the advantages of short-term debt financing is that firms can expand or contract their short-term credit more easily than their long-term credit. True False 15. Short-term loans generally are obtained faster than long-term loans because when lenders consider long- term loans they insist on a more thorough evaluation of the borrower's financial health and because the loan agreement is more complex. True False
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16. A line of credit and a revolving credit agreement are similar except that a line of credit creates a legal obligation for the bank. True False
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Chapter 16--Managing Short- - Copy - Chapter 16-Managing...

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