12/8/22, 8:59 PM Your Results for "Multiple choice questions"

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Site Title: Fundamentals of Financial Management, Summary of Results

thirteenth edition
100% Correct of 20 Scored items:
Book Title: Fundamentals of Financial Management,
20 Correct: 100%
thirteenth edition
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Book Author: Van Horne/Wachowicz
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Location on Site: Student Resources > Chapter 11 > Multiple
choice questions
Date/Time December 8, 2022 at 1:00 PM (UTC/GMT)
Submitted:

1. Under CBD terms of sale, the seller __________.

Your Answer: asks the buyer to pay before the goods are shipped

2. The type of business least likely to use trust receipt loans would be a __________.

Your Answer: distributor of lighting supplies

3. If credit terms of "1/10, net 35" are offered, the approximate cost (using 365 days) of not
taking the discount and paying at the end of the credit period would be __________.

Your Answer: 14.7%

4. When should a rational financial manager pay a bill if 1) a discount is offered, 2) the discount
has not yet expired, 3) the firm needs to borrow funds to take the discount, 4) the firm will
have sufficient cash by the end of the net period, and 5) the best possible borrowing rate
exceeds the cost of forgoing the discount?

Your Answer: On the final due date.

5. If Dakota Medical Suppliers receive an invoice for purchases dated 12/12/20X9 subject to
credit terms of "2/10, net 30", what is the last possible day the discount can be taken?

Your Answer: January 22.

6. A lien against a group of assets without the assets being specifically identified is referred to
as a __________.

Your Answer: floating lien

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12/8/22, 8:59 PM Your Results for "Multiple choice questions"

7. When a firm needs guaranteed, short-term funds available for a variety purposes, the bank
loan will likely be a __________.

Your Answer: revolving credit agreement

8. Which of the following is not a form of short-term, spontaneous credit?

Your Answer: Commercial paper.

9. Which of the following statements about various types of negotiated financing is most
correct?

Your Answer: Bankers acceptances involve a large, well-known bank replacing the
creditworthiness of the "drawee" (e.g., an American importer).

10. Which of the following terms best applies to the short-term interest rate charged by banks to
large, creditworthy customers?

Your Answer: Prime rate.

11. What is the interest rate that world-class banks in London pay each other for Eurodollars?

Your Answer: London interbank offered rate (LIBOR).

12. A security device acknowledging that the borrower holds specifically identified inventory and
proceeds from its sale in trust for the lender is referred to as a __________.

Your Answer: trust receipt

13. What is the difference between interest being paid on a discount basis versus a collect basis?

Your Answer: Interest is deducted from the loan on a discount basis while interest is paid at
maturity on a collect basis.

14. eRetailer.com has a revolving credit agreement with a bank. eRetailer.com can borrow up to
$2 million at 10 percent interest and is required to keep 10 percent compensating balance on
all borrowed funds. If the firm must also pay .4 percent (.004) compensating balance and
borrows $1.2 million for the entire year, what is the effective cost of borrowing?

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12/8/22, 8:59 PM Your Results for "Multiple choice questions"

Your Answer: 11.6%

15. eRetailer.com is borrowing $1 million at 10% for a year on a discount basis with a bank. How
much in funds are available for use? What is the effective cost of interest?

Your Answer: $900,000; 11.1%

16. Which of the following is incorrect regarding accounts-receivable-backed loans?

Your Answer: Lenders typically advance between 85% and 95% of the face value of
accepted accounts receivable.

17. A lien on specifically identified personal property that backs a loan is referred to as a
__________.

Your Answer: chattel mortgage

18. The trade terms "1/10, net 45" indicate that __________.

Your Answer: a 1% discount is permitted if payment is made within 10 days

19. If Dakota Medical Suppliers receive an invoice for purchases dated 12/12/20X9 subject to
credit terms of "net 30 EOM", what is the last possible day the payment should be made?

Your Answer: January 30.

20. Inventory is in the possession of a third party under which of the following methods?

Your Answer: Terminal warehouse receipts.

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