Management of Short-Term Financing Assignment

Management of Short-Term Financing Assignment1. A corporation invests in short-term assets, such as
______________, accounts ______________, inventory, and
marketable ______________. Short-term assets are also
referred to as ______________ capital, because they are put to
work to generate sales, which eventually result in cash flow
that ultimately generates ______________. ______________
capital comprises ______________ working capital, the
investment necessary to satisfy the ______________ demands
of ______________, and ______________ working capital,
the ______________ between actual working capital and permanent working capital.
2. The ______________ cost of borrowing is the cost of
______________, considering both ______________ and
______________ costs. This effective cost is the cost of
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______________ for a given period, the duration of time
over which interest is paid and at the end of which
______________ is calculated.
3. ______________ credit is granted by a supplier to a customer
purchasing ______________ or ______________.
______________ credit arises as the customer acquires goods
or services and promises to pay in the ______________. From
the ______________ point of view, trade credit is a way of
making more ______________. From the ______________
point of view, trade credit is an easy way to finance the
______________ of goods. For the ______________, trade
credit creates accounts ______________; for the
______________, trade credit creates accounts ______________.
4. Managing accounts ______________ involves negotiating
the terms of ______________, as well as deciding when to
pay amounts due. Remember that accounts ______________
are the “flip side” of accounts ______________—accounts
payable are someone else’s accounts receivable. Suppliers
are trying to ______________ costs, in terms of funds tied
up in accounts receivables and bad debts. Yet, at the same
time, they are extending ______________ to generate more
______________.
5. Firms try to set policies so terms of credit are
______________ within industries. However, if a firm is an
important ______________ of a particular supplier,
______________ terms of credit may be negotiated. In calCh21 Page 204 Tuesday, December 16, 2003 9:15 AM
Management of Short-Term Financing 205
culating the ______________ of trade credit, managers
know that paying within the ______________ period uses
free credit—meaning that payment can be ______________
and then paid the same as cash on the date of purchase.
Also, paying ______________ the discount period
______________ the cost of credit.
6. ______________ financing is backed by some specific
______________ or assets of the borrower. A borrower’s
______________ used in this way are referred to as
______________. The ______________ acts as a backup
source of ______________ for the lender if the borrower fails
to abide by the terms of the loan. The collateral for shortterm financing arrangements are usually ______________
assets—______________ securities, accounts ______________,
or ______________.
7. Accounts ______________ can be used as collateral for a(n)
______________ loan. There are three types of financing
arrangements that use accounts ______________ as security:
______________, ______________, and ______________.
Securitizing assets, also referred to as asset ______________,
is an important financing arrangement for raising
______________ to ______________ term funds.
8. In an assignment of ______________, the lender makes a
loan accepting the borrower’s accounts ______________
as the ______________. The borrower receives immediate
______________ in exchange for a(n) ______________
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note to the lender. The borrower’s customers are generally
instructed to send their payments to the lender, who uses
these payments to reduce the ______________ of the loan.
9. Instead of simply using accounts ______________ as
______________, the borrower can ______________ them
outright to another party—called a(n) ______________—
typically a bank or a commercial finance company. Selling
the ______________—called factoring—may be done with
or without recourse. The factor performs all the accounts
receivable functions: evaluating customers’ ______________,
approving ______________, and ______________ on
accounts receivable.
10.A(n) ______________ agreement, also referred to as a(n)
______________, is the sale of a security with a commitment by the seller to buy the same security back from the
purchaser at a specified price at a designated future date.
The seller repurchases the security at the repurchase
______________, on the repurchase ______________. A
repurchase agreement is a(n) ______________ loan, where
the collateral is the ______________. The interest rate is
the ______________ rate. When the term of the loan is one
day, it is a(n) ______________ repo and a loan for more
than one day is called a(n) ______________ repo.
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Management of Short-Term Financing 207
SHORT ANSWER QUESTIONS
Refer to Chapter 21, pages 679–714 in Financial Management and Analysis.
1. What are the costs of borrowing for all manner of loans?
2. What is the difference between secured and unsecured
financing?
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208 QUESTIONS AND PROBLEMS
3. Why is it that as the credit period lengthens, the cost of
trade credit declines?
4. When managing accounts payable, what are the consequences of paying late?
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Management of Short-Term Financing 209
5. Why might high and low turnover be good?
6. What are the types of financing arrangements and some of
their characteristics?