ch17 - Chapter 17 Short-Term Business Financing TRUE-FALSE...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Chapter 17 Short-Term Business Financing TRUE-FALSE QUESTIONS F 1. Working capital includes a firm’s marketable securities, accounts receivable, inventories, and mortgage debt. F 2. If net working capital is negative, current assets are partially financed by the firm’s long-term debt. T 3. The permanent current assets reflect the minimum investment level in cash, accounts receivable, and inventories needed to support sales. T 4. The maturity matching approach is a financing strategy that attempts to match the maturities of assets with the maturities of the liabilities which they are financed. F 5. Firms using maturity matching will have current ratios equal to 1.0. F 6. An aggressive financing plan has a higher financing cost, but with lower risk of not being able to borrow when short-term funds are needed. F 7. Service industries tend to have larger proportions of fixed assets to current assets. T 8. The need for current funds increases when there is an upswing in the business cycle or the sales cycle of an industry. F 9. An advantage of short-term borrowing is the need for frequent renewals. T 10. Short-term financing sources include bank loans, trade credit, and commercial paper. T 11. The prime rate is the interest rate the bank charges its most creditworthy customers. T 12. A line of credit costs the firm only the normal interest for the period during which money is actually borrowed. T 13. A compensating balance requirement means that a lending institution will require a borrowing company to keep a certain percentage of the loaned amount on deposit with that institution. F 14. Compensating balances decrease the effective cost of borrowing. F 15. Discounting has the effect of reducing the available funds received by the borrower while raising the effective interest rate. F 16. A line of credit is a legal obligation of the bank to provide funds up to the agreed- upon borrowing limit for a period of time. T 17. Manufacturing companies tend to be the largest users of accounts receivable financing. F 18. A trust receipt is a claim against a customer’s inventory when the individual items are indistinguishable. F 19. Field warehouses are in operation throughout the United States but are concentrated in the central and East coast regions. F 20. Inventory loans are less expensive than unsecured loans to business borrowers. F 21. A discounted loan is one in which the borrower receives a discount on the interest rate. T 22. An acceptance is a receivable from the sale of merchandise on the basis of a draft or bill of exchange drawn against the buyer or the buyer’s bank. T 23. Short-term financing may come in the form of trade credit extended between businesses....
View Full Document

This note was uploaded on 11/01/2011 for the course ACC 200 taught by Professor Minliu during the Spring '11 term at Universidad Europea de Madrid.

Page1 / 16

ch17 - Chapter 17 Short-Term Business Financing TRUE-FALSE...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online