81. Over the years, Zebra Productions has been slow making payments to its bank. Now it is in need of financing.
Based on past experience, the interest rate Zebra will pay is the
a. interest rate determined by the SBA.
b. finance rate determined by the Department of Commerce.
c. prime rate.
d. prime rate plus 4 percent.
e. prime rate minus 2 percentage points.
82. Assume that the First State Bank of Chicago requires a 20 percent compensating balance on short-term loans. If
you borrow $50,000, at least of the loan amount must be kept on deposit at the bank.
a. $4,000
b. $10,000
c. $1,000
d. $20,000
e. $50,000
83. If Sunbelt Computers were to take out a short-term loan from Chase for $5 million and were required to keep
$500,000 of that in its Chase account, this would be called a(n)
a. compensating balance.
b. security deposit.
c. commercial-paper arrangement.
d. reserve requirement.
e. insurance policy.
84. The Fruitiest Candy Company finds that from time to time it needs short-term funds to cover its operating
expenses. It wants to establish a prearranged loan with a bank but has not found a bank that will guarantee such a
loan. Perplexed by this, the management team asks you how they should proceed. You recommend that they
a. file a suit against the banks.
b. find a bank out of state or out of the country that will guarantee that the money will be available when
needed.
c. simply file a claim with the FDIC.
d. retaliate by withdrawing all cash from the local bank and canceling all certificates of deposit.
e. set up a line of credit with a bank that offers a revolving credit agreement.
85. In a revolving credit agreement, the borrower typically pays of the portion of the agreement.
a. 1.0 to 3.0 percent; unused
b. 1.0 to 3.0 percent; used
c. only regular interest; used
d. 0.25 to 1.0 percent; used
e. 0.25 to 1.0 percent; unused
86. is (are) short-term promissory notes with no collateral that are issued by large corporations.
a. Serial bonds
b. Sinking funds
c. Convertible bonds
d. Credit agreements
e. Commercial paper
87. Commercial paper usually is issued
a. for 3 to 7 years.
b. for short-term financing by large corporations.
c. for short-term financing by small businesses.
d. by large corporations unable to get credit elsewhere.
e. by savings and loan associations.
88. Suppose IBM decided to issue commercial paper in denominations of $5,000 to raise a large sum of money. Since
the commercial paper is secured only by IBM’s reputation,
a. IBM does not have to pay back the principal.
b. IBM has to pay interest rates higher than those charged by commercial banks for short-term loans.
c. no interest is paid.
d. no collateral is involved.
e. the commercial paper can be issued only in $1,500 or $10,000 denominations.
89. Which of the following companies would most likely be able to issue commercial paper?
a. Mike’s Pizza Place
b. A local housing construction company
c. General Electric
d. A medium-sized advertising agency
e. United Way
90. The assets most commonly used as collateral for short–term financing include
a. cash and accounts receivable.
b. accounts payable and notes payable.
c. inventory and equipment.
d. marketable securities and owners’ equity.
e. accounts receivable and inventory.
91. Use of a warehouse receipt in short-term financing indicates that
a. a loan has been secured by inventory.
b. a loan has been obtained to purchase raw materials.
c. a shipper or freight company has bought merchandise from a company.
d. fur coats are being stored in a retail location.
e. the lender is taking precautions because the loan is unsecured.
92. Surf ‘N‘ Sun Shop sells ski boats and other boating accessories. It receives most of its inventory about three months
in advance of the summer season, but it is not able to pay for the inventory up front. Instead, its suppliers allow Surf
‘N‘ Sun to use its inventory as collateral. This type of agreement is called
a. unsecured short-term financing.
b. long-term lending.
c. factoring.
d. secured short-term financing.
e. a promissory note.
93. The amounts owed to a firm by its customers are called
a. factors.
b. revolving credit agreements.
c. dividends.
d. accounts receivable.
e. commercial drafts.
94. Rick‘s Wholesale Office Supplies prefers to handle its accounts receivable itself, but it also needs to use them to
facilitate short-term borrowing. What can Rick’s do?
a. Use floor planning.
b. Purge its accounts receivable.
c. Pledge them as collateral.
d. Force all customers to pay now.
e. Sell commercial paper.
95. A firm that specializes in buying other firms’ accounts receivable is called a(n)
a. factor.
b. broker.
c. credit officer.
d. agent.
e. trustee.
96. A factor will buy accounts receivable for
a. more than their face value.
b. less than their face value.
c. their present value.
d. their par value.
e. the interest that can be collected from them.
97. To raise money, Fawcett Productions sold its accounts receivable to a . In doing so, Fawcett received cash
and shifted to the other company both the task of collecting and the risk of nonpayment.
a. credit-reporting agency
b. stockbroker
c. factor
d. real estate agent
e. credit union
98. Kirsten purchased a new dining room table and china cabinet from Discount Furniture, which offered a one-year
special with no interest or financing charges. When Kirsten makes her purchase, Discount Furniture checks her
credit and seeks approval for her. Upon approval, Kirsten receives information informing her that she will make
payments to Regional Finance Company. This arrangement is an example of
a. unsecured bank loan.
b. commercial paper.
c. factoring.
d. pledging accounts receivable.
e. selective financing.
99. When Platinum Fitness sells its accounts receivable to a financial institution, it receives less than the full value of
the accounts receivable. Which of the following is a benefit Platinum Fitness receives from this arrangement?
a. It will receive the money in one month instead of two months.
b. It will have more inventory than its competitors.
c. This will allow closer relationships with its customers.
d. The time and expense of collecting accounts shifts to the factor.
e. Platinum will be responsible for collecting the accounts.
100. The least expensive form of short-term financing is
a. trade credit.
b. promissory notes.
c. unsecured bank loans.
d. secured bank loans.
e. factoring.
101. The highest cost of short-term finance generally is
a. trade credit.
b. unsecured bank loans.
c. commercial paper.
d. factoring.
e. promissory notes.
102. Which of the following generally has no specific repayment period?
a. An unsecured bank loan
b. Factoring
c. A secured loan
d. A promissory note
e. Trade credit
103. Some equity capital generally is used to start a
a. sole proprietorship only.
b. partnership only.
c. corporation only.
d. business regardless of its legal form.
e. cooperative only.
104. For a corporation, equity capital is obtained from
a. bondholders.
b. banks.
c. stockholders.
d. insurance companies.
e. credit unions.
105. To raise capital, Financial Fusion sold
a. stock to family members and friends.
b. stock to stockholders by using an IPO.
c. bonds to a few close associates.
d. commercial paper certificates to clients.
e. promissory notes to a few trustworthy investors.
106. During 2010, Bedford Technology sold common stock for the first time to whoever wanted to buy it. This was the
for Bedford.
a. public stock sale
b. preferred stock offering
c. initial public offering
d. stock dividend
e. par value
107. When a corporation uses an initial public offering to raise capital, the stock is sold in the
a. primary market.
b. secondary market.
c. unsecured financing market.
d. securities exchange.
e. over-the-counter market.
108. A loan that is approved before the money is actually needed is called a
a. certificate of deposit.
b. check.
c. credit bounce.
d. line of credit.
e. promissory note.
109. Which of the following statements is incorrect?
a. The size of the investment banker‘s commission depends on the financial health of the corporation issuing
stock.
b. Although a corporation can have only one IPO, it can sell additional stock after the IPO.
c. The cost of selling stock is referred to as flotation costs.
d. The ongoing costs associated with selling stock are low.
e. All of these statements are correct.
110. For a corporation such as AT&T, what are the two primary advantages of equity financing?
a. It never has to be paid back and flotation costs are low.
b. There is no obligation to pay dividends or to repay the money obtained from the sale of stock.
c. Interest payments are less than debt financing and principal does not have to be repaid.
d. Ownership is spread among many individuals and no interest payments are required.
e. Investors pay top dollar for stock issues and the corporation has higher ongoing expenses.
111. is (are) the earnings of a corporation that are distributed to the stockholders.
a. Interest
b. Dividends
c. Retained earnings
d. Discounts
e. Premiums
112. How many times can a corporation’s stock be sold in the primary market?
a. Once
b. Twice
c. A maximum of three times
d. Once per year
e. Unlimited
113. A marketplace where member brokers meet to buy and sell securities is known as
a. the primary market.
b. the supplemental market.
c. the overseas market.
d. an IPO.
e. a securities exchange.
114. The Nasdaq, part of the market, provides price information on more than 3,600 stocks.
a. NYSE
b. secondary
c. primary
d. over-the-counter
e. securities exchange
115. The two types of stock a company can sell are
a. asset and convertible.
b. preferred and standard.
c. common and class.
d. equity and asset.
e. preferred and common.
116. The most basic form of ownership in a corporation is
a. common stock.
b. bonds.
c. preferred stock.
d. debentures.
e. dividends.
117. The board of directors of a corporation usually is elected by
a. bondholders.
b. preferred stockholders.
c. the corporation’s board of directors.
d. convertible preferred stockholders.
e. common stockholders.
118. As a stockholder in 3M, Doug knows that corporations are required by law to have a stockholder meeting
a. never.
b. once a quarter.
c. once a year.
d. every other year.
e. when a special need arises.
119. The right to vote on major corporate actions belongs to
a. bondholders.
b. preferred stockholders.
c. participating preferred stockholders.
d. convertible preferred stockholders.
e. common stockholders.
120. As a stockholder in the Giant Plants Company, you have the right to vote on all of the following issues except
a. amendments to the corporate charter.
b. the price the firm charges for its products.
c. the sale of certain assets.
d. new issues of preferred stock or bonds.
e. changes in the amount of common stock issued.