Multiple Choice Questions

1. Which of the following is not near-cash?

A. T-bills

B. Commercial paper

C. Bankers’ acceptances

D. Long-term debt

2. Which of the following descriptions about near-cash is false?

A. Low returns

B. Great liquidity

C. Minimal additional risk

D. Credit risk

3. Which of the following statements about float time is false?

A. Historically, mailing time is the shortest.

B. An efficient credit policy speeds up inflows.

C. Cheque-processing time is one source of float.

D. Using preauthorized payment is one way to shorten float time.

4. If the current credit policy is 3/30, net 45, which of the following tightens the credit policy?

A. 3/30 net 40

B. 3/35 net 50

C. net 45

D. 3/40 net 50

5. A firm is offered by its supplier the following credit terms: 3/15 net 60. The sales price of the products is $2,000. What is the effective annual cost of forgoing the discount?

A. 28%

B. 32%

C. 20%

D. 35%

6. Which of the following statements about bank loans is false?

A. The rate is normally variable.

B. Lines of credit usually link to the firm’s chequing account.

C. Operating loans are usually secured by accounts receivable and inventory.

D. The cost of operating loans is quite high.

7. Suppose a firm is offered a two-year variable rate monthly pay loan at prime plus 1 percent, with a prime rate of 6.5 percent. What is the effective annual cost of the loan regardless of other fees?

A. 7.58%

B. 7.76%

C. 7.78%

D. 8.01%

8. Which of the statements about money market instruments is false?

A. They provide large amounts of short-term financing for firms with good credit ratings.

B. Two main types available are: commercial paper and bankers’ acceptances.

C. They are similar to bonds.

D. CP can be issued by any firm that needs large amounts of short-term financing.

9. Which of the following statements about factor arrangements is false?

A. A factor is an independent company.

B. A factor often checks the credit of new customers.

C. Factor arrangements can be costly.

D. A factor does not purchase accounts receivable from its clients.