Reference no: EM1310067

Multiple choice questions on short-term loans, rate of interest.

1. The primary source of secured short-term loans to businesses are

a) Savings and loans and factors;

b) Commercial paper dealers and investment bankers

c) Commercial banks and commercial finance companies.

d) Life insurance companies and government securities brokers.

2. The prime rate of interest fluctuates with

a) The changing supply and demand relationship for long-term funds;

b) The changing supply and demand relationship for short-term funds;

c) The risk of the firm borrowing the funds;

d) Demand in the bond market.

3. The basic strategies that should be employed by the businesses firm in managing cash include all the following except

a) Paying accounts payable as late as possible without damaging the firms credit rating

b) Turning over inventory as quickly as possible, avoiding stock outs

c) Operating in a fashion that requires maximum cash

d) Collecting accounts receivable as quickly as possible without damaging customer rapport

4. The _________ is the time period that elapses from the point when the firm uses the raw materials in manufacturing a finished good to the point when the finished good is sold.

a) A cash turnover

b) Cash conversion cycle

c) Average age of inventory

d) Average collection period

5. Net working capital is defined as

a) A ratio measure of liquidity best used in cross sectional analysis

b) The portion of the firm's assests financed with short-term funds

c) Current liabilities minus current assets

d) Current assets minus current liabilities

6. A firm which uses the aggressive financing strategy plans to purchase a major fixed asset financed with a loan. The most likely consequence of the action is?

a) A decrease in the current ratio

b) An increase in net working capital

c) A decrease in the risk of technical insolvency

d) An increase in long-term debt

7. 2/15 net 45 translates as

a) 15 percent cash discount if paid in 2-days net 45 day credit period

b) 45 percent of aaccount due in 15 days, payment prior to day 15 receives a 2-percent discount

c) 2 percent cash discount if paid prior to 15 days, if customer does not take a cash discount, the balance is due in 45 days

d) 2 percent of the balance is due in 15 days, the remaining balance is due in 45 days

8. Sound cash management techniques would support

a) Minimizing collection float, maximizing disbursement float, and minimizing the cash conversion cycle

b) Minimizing collection float, maximizing disbursement float, and minimizing the cash turnover

c) Maximizing collection float, minimizing disbursement float, and minimizing operating cash

d) Minimizing collection float, maximizing disbursement float, and minimizing operating cash

9. _________________-- ensure that money lent under a line of credit agreement is actually being used to finance seasonal needs

a) Operating change restrictions

b) Annual cleanups

c) Compensating balances

d) Commitment fees

10. A firm arranged for a 120-day bank loan at an annual rate of interest of 10%. If the laon is for 100,000, how much interest in dollars will the firm pay/ (Assume a 360 day year)

a)$10,000

a) 30,000

b) 3,333

c) 1,000