261. (p. 497) The process of ________ uses a firm’s accounts receivable as collateral for a loan.
262. (p. 497) A firm negotiates a(n) _________ with its bank so the firm will have access to a specified amount of
unsecured short-term funds, provided the bank has the funds available.
A. asset drawing account
263. (p. 497) A ________ refers to a line of credit that is guaranteed by the bank.
D. commercial credit agreement
264. (p. 497) ___________ offer short-term secured loans to high-risk borrowers.
D. Investment bankers
265. (p. 497) Selling accounts receivable to obtain short-term funds is called:
D. debt financing.
266. (p. 497) Since commercial finance companies offer loans to higher risk customers than commercial banks, the
interest rates they charge are usually ________ than rates charged by banks.
D. subject to lower taxes
267. (p. 498) _________ offers financially stable corporations a technique to raise short-term funds by issuing
unsecured promissory notes to the general public.
A. Trade credit
268. (p. 494) As a result of cash flow shortages, Washington Department Stores has fallen behind in payments to
suppliers. Some suppliers are withholding shipments to Washington until they receive payments on overdue
accounts. To meet their immediate needs, Washington Department Stores should utilize:
A. vulture capital.
269. (p. 495) This gives customers a:
A. fifteen percent discount if they pay in three days.
270. (p. 496) To secure financing for a planned expansion, Ohio Electronics borrowed $400,000 from King
Finance. The ________ loan agreement requires that Ohio Electronics provide the title to their factory as
collateral.
D. minority
271. (p. 497) Farmers Savings and Loan agreed to extend Eckert’s Orchards $200,000 of unsecured short-term
funds, contingent upon the bank having the funds available. This arrangement represents a:
C. factoring agreement.
D. trade voucher.
272. (p. 498) Many small businesses rely on factoring as a source of short-term financing because:
A. factoring provides a much cheaper source of funds than bank loans.
273. (p. 498-499) Which of the following organizations would be most likely to acquire short-term funding by
issuing commercial paper?
D. a company that prefers equity financing to obtain short-term funds
274. (p. 497) Philadelphia Development, a leader in residential housing, recently negotiated a financing
arrangement with First Pennsylvania Bank. The short-term funding agreement guarantees a specified amount of
funds would be made available upon Philadelphia Development’s request. This arrangement represents a:
A. line of credit.
275. (p. 494) As the owner of Kingdom’s Treasures, Jerry negotiates with suppliers who hope to place their
products in his high volume retail gift store. Jerry finances his inventory through the ________ credit offered by
suppliers who delay his payments for up to 60 days after the merchandise has been delivered to his business.
D. LIFO
276. (p. 495) This implies that:
A. Virginia’s customers have very little incentive to pay within the discount period.
277. (p. 496) Delaware Aluminum uses its stock of unsold aluminum products as collateral for a short term loan.
This arrangement represents:
D. an unsecured loan.
278. (p. 497) The financial manager of Carolina Graphics negotiated a ________ with her bank that allows
Carolina to borrow up to $50,000 without collateral. This arrangement eliminates the need to renegotiate the
terms of the loan and complete new paper work each time Carolina borrows money. The preapproved loan
agreement is contingent upon the bank having the funds available.
D. renewable income option
279. (p. 497) Jackson Plumbing, a medium-sized company, wants to guarantee that it can obtain short-term funds
to meet unexpected future cash needs. Which of the following strategies would best meet the financing needs of
Jackson Plumbing? Financial managers at Jackson Plumbing should:
A. issue commercial paper as needed.
280. (p. 497) Vitale Jewelers obtains needed short-term funds by selling its accounts receivable to the Friendly
Finance Company. Friendly Finance usually pays Vitale about 80% of the value of the receivables. Vitale
Jewelers utilizes ________ as a means of raising short-term funds.
A. trade credit
281. (p. 498) Admiral Electric is a widely known, successful manufacturer of industrial motors and related
equipment. When Admiral Electric anticipates a need for short-term funds, it offers unsecured promissory notes
to investors for 180 days. To obtain short-term financing, Admiral Electric utilizes:
A. revolving credit.
282. (p. 498, Reaching Beyond Our Borders box) According to the boxed material entitled “Reaching Beyond Our Borders” in
Chapter 18, which of the following describes international factoring?
D. An intermediary financial institution issues shares of ownership to investors in different countries.
283. (p. 500) Long-term financing would normally be used to purchase:
A. supplies.
284. (p. 500) Businesses acquire long-term financing from two major sources:
A. debt financing and government funds.
285. (p. 500) When using ________ financing, the company incurs a legal obligation to repay the amount
borrowed.
D. commitment
286. (p. 500) The interest paid on ________ financing represents a tax deductible business expense.
D. commercial
287. (p. 500) A promissory note that requires the borrower to repay the loan in specified installments is called
a(n):
D. revolving line of credit
288. (p. 500-501) Which of the following suggests that higher interest rates are charged to high risk borrowers?
A. direct relationship principle
289. (p. 501) A _________ represents a long-term debt obligation issued by a corporation or a government.
290. (p. 501) The terms of the agreement in a bond issue are referred to as the:
A. articles of the issue.
291. (p. 501) Which of these is backed only by the reputation of the issuer?
292. (p. 501) Which of the following provides the buyer with collateral?
D. debenture bonds
293. (p. 502) Equity financing comes from the ________ of the firm.
A. creditors
294. (p. 503) __________ represent the most favored source of meeting long-term financing needs because there
are no interest payments, dividends, or underwriting fees required when using this source.
295. (p. 503) __________ provide financing to new or emerging companies with high profit potential. In return,
these organizations expect a share of ownership in return for the financing they provide.
D. Investment bankers
296. (p. 504) __________ refers to the strategy of using borrowed funds to increase the rate of return for
stockholders.
D. Pledging
297. (p. 504) The rate of return a company must earn to meet the demands of its lenders and expectations of its
equity holders is called:
A. opportunity rate.
298. (p. 501) Which of these is a common source of long-term financing for a corporation?
A. a revolving credit agreement