Reference no: EM132645410

1) Your company's primary supplier has decided to change its credit terms from 1/10 net 60 to 2/10 net 30. Assuming that you can borrow from the bank at a stated interest rate of 9.5%, which of the following statements is true?

a) Your company shouldn't take the discount under the new terms; you did take the discount under the old terms.

b) Your company should take the discount under the new terms; you didn't take the discount under the old terms.

c) Your company took the discount under the old terms and will continue to do so with the new terms.

d) Your company shouldn't take the discount under either set of terms.

2) When acquiring financing for its investment in net working capital (NWC), a firm must consider several factors. In this context, which of the following statements is true?

a) Under the moderately conservative approach to financing NWC, the portion financed with long-term debt provides excess funds during part of the year, which is intended to provide protection against liquidity risk.

b) To reduce risk, the firm should always ensure that the term of the borrowing is longer than the useful life of the asset.

c) While there are several advantages to a firm associated with factoring its accounts receivable without recourse, one shortcoming is that the firm remains exposed to the risk of bad debt.

d) Total current assets required at the seasonal high of the business cycle are called seasonal temporary current assets.