Using the graph below that shows a Current Asset Financing Policy, answer the True and False questions below Circle the correct answer 1 T or F This graph demonstrates the Relative Aggressive approach to financing current assets 2 T or F Only a portion of permanent current assets are financed with long term funding which exposes the firm to changes in the short term credit markets 3 T or F This approach utilizes short term borrowing and potentially has the ability To increase ROI 4 T or F This policy increases risk and can impact a firms long term financial viability , especially during credit borrowing bubbles in the economy 5 T or F This policy actually reduces the risk of financing current assets because it uses short term interest rates Multiple choice Select your answer In determining the cost of bank financing, which is the most important factor A The prime rate B The nominal rate C The effective rate D The discount rate Construction Co has an outstanding 180 day bank loan of $475,000 at an annual interest rate of 7 5 The company is required to maintain a 15 compensating balance in its checking account What is the effective interest rate on the loan A 11 2 B 19 0 C 22 45 D 8 8 A large manufacturing firm has been selling on a 3 10, net 30 basis The firm changes its credit terms to 2 20, net 90 What change might be expected on the balance sheets of the manufacturing firm A Decreased receivables B Increased receivables C Increased payables D Decreased payables Dollars Temporary Current Assets Short Term, Nonspontaneous Debt Financing Permanent Level of Current Assets Long Term Debt plus Equity plus Spontaneous Current Liabilities Fixed Assets 1 2 3 4 5 6 7 8 Time Period

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Using the graph below that shows a Current Asset Financing Policy, answer the True and False questions below. Circle the correct answer. 1. T or

Using the graph below that shows a Current Asset Financing Policy, answer the True and False questions below.

image text in transcribed

Circle the correct answer.

1. T or F This graph demonstrates the Relative Aggressive approach to financing current assets.

2. T or F Only a portion of permanent current assets are financed with long term funding which exposes the firm to changes in the short term credit markets.

3. T or F This approach utilizes short term borrowing and potentially has the ability To increase ROI.

4. T or F This policy increases risk and can impact a firms long term financial viability , especially during credit borrowing bubbles in the economy.

5. T or F This policy actually reduces the risk of financing current assets because it uses short term interest rates.

Multiple choice

Select your answer.

In determining the cost of bank financing, which is the most important factor?

A. The prime rate

B. The nominal rate

C. The effective rate

D. The discount rate

Construction Co. has an outstanding 180-day bank loan of $475,000 at an annual interest rate of 7.5%. The company is required to maintain a 15% compensating balance in its checking account. What is the effective interest rate on the loan?

A. 11.2%

B. 19.0%

C. 22.45%

D. 8.8%

A large manufacturing firm has been selling on a 3/10, net 30 basis. The firm changes its credit terms to 2/20, net 90. What change might be expected on the balance sheets of the manufacturing firm?

A. Decreased receivables

B. Increased receivables

C. Increased payables

D. Decreased payables

Dollars Temporary Current Assets Short-Term, Nonspontaneous Debt Financing Permanent Level -of Current Assets Long-Term Debt plus Equity plus Spontaneous Current Liabilities Fixed Assets 1 2 3 4 5 6 7 8 Time Period