Week 6 Flashcards
When do we not exclude interest costs from usable funds?
When interest costs are due at maturity
When do we exclude costs interest costs from usable funds?
If interest costs are paid in advance
What are spontaneous liabilities?
Liabilities that occur in the normal course of business
Liabilities for service performed for which payment has yet to be made (Wages/Tax)
What is accounts payable management?
Managing time from purchases to payment
Should pap on last day possible
What is stretching accounts payable?
Paying bills as late as possible without damaging credit.
What are the ethical issues with stretching accounts payable?
May cause the firm to violate the agreement with the supplier
Suppliers may impose late fees or refuse future credit
What are 3 sources of unsecured financing?
Single Payment Note
Line of credit
Revolving credit agreements
What is a fixed interest rate?
Interest rate at a fixed increment above the benchmark (OCR)
What is a floating interest rate?
Set above the benchmark, and will vary with the benchmark
What is a single payment note?
1 Time loan
Will maintain compensating balance equal to a % of the loan
What is a line of credit?
The firm can borrow a predetermined amount
Can be revoked due to changes in firms condition
What is the annual clean up in regards to the line of credit?
The number of days borrower must have zero account balance
What is revolving credit?
Guaranteed line of credit
Guaranteed that the bank will make certain mount available
Interest applies to unused portions as well
What is commercial paper?
Short term, unsecured debt issued by.a high credit agencies (3-270 days)
What are the costs of commercial paper?
Sell at a discount from face value
Trade-in market above T-Bill rate
What is the pledging of accounts receivable?
Periodically send ledger of accounts receivable
The lender will determine the amount of funds
What is non-notification?
Account customers don’t know the account is collateralized
Used in pledging of account receivable
What is factoring of accounts receivable?
Outright sale of accounts receivable, title transferred and no longer on the balance sheet.
Send customers orders to pay factor. Factor accepts all credit risk
What can be used for inventory loans?
Raw materials and finished goods only.
Don’t accept perishable goods
What is a floating Inventory loan?
A general claim by a creditor against all inventory
When is a floating inventory loan attractive to a creditor?
When the firm has a diverse group of inexpensive merchandise
What is a trust receipt loan?
Normally against expensive inventory, repaid directly after-sale and normally advanced 80%-100% of the cost
**Must be identifiable by serial number
What is a warehouse receipt loan?
The lender receives control of inventory and inventory stored at the designated warehouse on the lender’s behalf
What is a Terminal warehouse?
Inventory stored in a warehouse operated by public warehousing company in creditors’ behalf.
What is a field warehouse?
Collateral stored in borrowers warehouse and controlled by a field warehouse team
