Reading 29: Sources of Capital

Which of the following is considered an internal source of funds for a company?

A company is offered credit terms of '2/10 net 40'. If the company chooses to forgo the discount and pay on the 40th day, the cost of this short-term financing is effectively the interest paid for holding the funds for how many days?

Which type of bank line of credit is considered the most reliable source of liquidity for a firm?

When a company sells its accounts receivable to a third party at a discount to raise cash, this process is known as:

Which of the following best describes 'blanket lien' in the context of secured loans?

Commercial paper is typically issued by:

What is the typical use of a 'backup line of credit' for a company issuing commercial paper?

Which source of capital typically has the lowest priority of claims in the event of liquidation?

A company wants to reduce the cost of its short-term funding. Which of the following observations regarding trade credit terms '2/10 net 30' is accurate?

Which of the following is considered a 'secondary' source of liquidity?

Obsolete inventory that takes a long time to sell is best classified as a:

A reduction in a company's credit limit by a bank would be considered a:

The current ratio is calculated as:

Which ratio excludes inventory from the numerator to provide a more stringent measure of liquidity?

Given: Credit Sales = 1,000,000; Average Receivables = 100,000. What is the receivables turnover?

If a company has a receivables turnover of 10, what is the number of days of receivables (assume 365 days in a year)?

To calculate inventory turnover, the numerator should be:

A high inventory processing period (days of inventory) relative to the industry average most likely indicates:

Which ratio measures the use of trade credit by the firm?

The operating cycle is defined as:

The cash conversion cycle (net operating cycle) is calculated as:

A high cash conversion cycle relative to peers generally implies:

If a company has 40 days of inventory, 30 days of receivables, and 20 days of payables, what is its operating cycle?

Using the same data (Inventory 40 days, Receivables 30 days, Payables 20 days), what is the cash conversion cycle?

Which of the following short-term funding strategies focuses primarily on cost?

For larger borrowers, why is it recommended to use multiple lenders for short-term financing?

Which of the following is considered a drag on liquidity?

When companies match the maturities of their outstanding debt to the lives of their assets, they are managing:

In a period of expected high inflation, which type of debt financing becomes relatively more attractive?

Typically, which form of financing carries the highest cost of capital?

Which of the following is a characteristic of uncommitted lines of credit?

A 'committed' line of credit usually involves:

Short-term financing is most typically collateralized by:

The 'factor' in a factoring arrangement assumes responsibility for:

Web-based and non-bank lenders typically serve which segment of the market?

Convertible preferred stock differs from regular preferred stock because:

Which of the following makes debt financing relatively more attractive?

A 'pull' on liquidity is best exemplified by:

If a company has a Quick Ratio of 0.8 and a Current Ratio of 1.5, what can be inferred?

For a company with '2/15 net 45' terms, what is the 'discount period'?

Which of the following is an example of effective cash flow management acting as a source of liquidity?

If a firm has a Payables Turnover of 12, what is the number of days of payables?

Which condition makes secondary sources of liquidity distinct from primary sources?

Generally, a company's liquidity position improves if:

If a company's Quick Ratio is less than 1, it suggests:

A 'Working Capital' deficit implies:

Which of the following is NOT a typical component of a company's internal sources of funds?

If Days Inventory = 45, Days Receivables = 35, and Days Payables = 30, what is the Operating Cycle?

The formula for the Cash Conversion Cycle is:

Which strategy ensures access to funds for unforeseen events but may increase borrowing costs?