Reference no: EM131552833

Please answer the following questions:

1. Which of the following is a major problem with using inventory for collateral for short-term loans?

a. higher costs than unsecured loans

b. lenders prefer not to make secured loans

c. factoring

d. valuing the inventory

2. The primary disadvantage of relying on short-term credit for continuous financing needs is:

a. the risk of increasing interest rates

b. the higher interest rates relative to long-term rates

c. the time it takes to arrange for it as compared to long-term financing

d. banks don’t like to lend short-term

3. Short-term financing is normally cheaper than long-term financing because it:

a. is less risky for the borrower

b. has interest costs which are certain

c. has higher transaction costs

d. usually has lower interest rates than long-term financing

4. For short-term funding (less than a year), firms usually use all but which of the following?

a. bonds

b. commercial paper

c. revolving line of credit

5. Which of the following is the type of short-term loan banks most like to make to a borrower with seasonal financing needs?

a. self-liquidating

b. line of credit

c. letter of credit

d. bonds payable

6. A firm’s policy for offering credit to its customers includes:

a. credit terms and credit standards

b. factoring

c. the interest earned on investments in accounts receivable

d. management of accounts payable

7. If a firm’s level of accounts receivable increases, bad debt expense will tend to:

a. be unaffected

b. decrease

c. increase

d. remain constant

8. Factoring enables a firm to:

a. write off bad debts

b. sell accounts receivable at a profit

c. sell accounts receivable, although at a discount

d. trade accounts receivable for inventory

9. Making credit standards more lenient would tend to

a. increase inventory

b. decrease inventory

c.increase accounts receivable

d.decrease accounts receivable

20. Which of the following best describes why a firm might decide to extend credit?

a. increase sales

b. reduce inventory levels

c. increase accounts receivable

d. reduce bad debt levels