Explain differences of pledging and factoring receivables

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1. Explain the differences between a line of credit and a revolving credit agreement.

2. What are some of the disadvantages of relying too heavily on commercial paper as a source of short-term credit?

3. Explain the differences between pledging and factoring receivables.

4. Explain the difference between a floating lien and a trust receipts arrangement.

5. Explain why the annual financing cost of secured credit is frequently higher than that of unsecured credit.

6. Explain why banks normally include a "cleanup" provision in a line of credit agreement.

7. What savings are realized when accounts receivable are factored rather than pledged?

8. Determine the effect of each of the following conditions on the annual financing cost for a line of credit arrangement (assuming that all other factors remain constant):

a. The bank raises the prime rate.

b. The bank lowers its compensating balance requirements.

c. The firm's average bank balance increases as the result of its instituting more stringent credit and collection policies.

9. Under what condition or conditions, if any, might a firm find it desirable to borrow funds from a bank or other lending institution in order to take a cash discount?

Reference no: EM13927191

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