1) Which of the following is not a source of unsecured short-term credit? a. tra

Question

1) Which of the following is not a source of unsecured short-term credit?
a. trade credit
b. a line of credit
c. floating lien
d. commercial paper

2) Which of the following actions would improve a firm's liquidity?
a. selling stock and reducing accounts payable
b. selling bonds and increasing cash
c. buying bonds
d. both a and b

3) The risk-return trade-off in managing a firm's working capital involves which of the following?
a. A trade-off between liquidity and activity.
b. A trade-off between debt and equity.
c. A trade-off between the firm's liquidity and its profitability.
d. None of the above.

4) The Dorle Manufacturing Company is going to issue 180-day commercial paper to raise $40 million. It anticipates a discounted interest rate of 13 percent, and dealer placement costs of approximately $60,000. What is the effective annual cost of credit to Dorle (round to the nearest .01 percent)?
a. 14.25%
b. 13.47%
c. 13.90%
d. 13.02%

Explanation / Answer

1) Floating lien is not a source of Unsecured short-term credit. Correct option is c) Floating line. 2) Both a and b will improve the liquidity position of the firm. Correct option is d) 3) The risk-return trade off between liquidity and profitability of the firm. Correct option is c) 4) EAR = (1 + 0.13 / 2)^2 - 1             = 0.1347 or 13.47% Correct option is b) 13.47%

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