1. Choose the answer that best evaluates the following statement: A bank loan officer has been approached by a start-up company that needs a five-year loan to purchase the equipment for its first project. The project will have a life of five years. At the end of five years, the equipment will be worthless. The founders of the company told the loan officer that they would be willing to pay a much higher interest rate on a simple interest loan rather than contracting to an add-on interest loan.

a) The loan officer should offer the company a simple interest loan. The bank will make more money in the long run because it can charge a much higher interest rate.

b) The loan officer should offer the company an add-on interest loan because there is a high risk that the company will not be able to repay the principal on the loan at the end of the project's life.

2. When resources are used and the payment for those resources is delayed, the result is the spontaneous creation of short-term Accruals /bank loans / trade credit / commercial paper

3. Piero Production Inc. is a manufacturing company. Piero'ss new CFO is reviewing the company's payment policy with the accounting staff. She has learned that Piero has not taken advantage of discounts in the past, and it typically pays its suppliers 30 days after the invoice date. The CFO has instructed the accounting staff to take advantage of all discounts and to stretch payments to those suppliers that do not offer discounts to 45 days. What type of financing is this: Accruals /bank loans / trade credit / commercial paper

4. Imagine that Houston Assemblers Inc is a manufacturing company. Houston's board is looking to expand through acquisition and would like to to be able to react quickly if an opportunity presents itself. Houston financial managers are making sure that cash is available to use a down payment to commit to a purchase in the near future. What type of cash balance is this? Transactions / compensating / speculative / precautionary

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