PRIN.OF CORPORATE FINANCE
PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 24, Problem 24PS

Bank loans, commercial paper, and medium-term notes* Complete the passage below by selecting the most appropriate terms from the following list:

floating lien, revolving credit, medium-term note, warehouse receipt, unsecured, commitment fee, commercial paper.

Companies with fluctuating needs for cash often arrange a _________ with their bank that allows them to borrow up to a specified amount. In addition to paying interest on any borrowings, the company must pay a _________ on any unused amount.

Secured short-term loans are sometimes covered by a _________, which gives it a general claim on the firm’s assets. Generally, however, the borrower pledges specific assets. For example, a loan may be secured by inventory. In this case, an independent warehouse company provides the bank with a _________, showing that the goods are held on the bank’s behalf and releases those goods only on instructions.

Banks are not the only source of short-term debt. Many large companies issue their own _________ debt directly to investors, often on a regular basis. If the maturity is less than 270 days, the debt does not need to be registered with the SEC and is known as _________. A company may also have a program to sell longer-maturity debt to investors on a continuing basis. This is called a _________ program.

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match the correct term for each of the following descriptions. Descriptions Terms Examples of these instruments include trade credit, accruals, short-term bank loans, and commercial paper. Accruals    A document that provides evidence of the existence of a debt, and specifies the terms of the loan transaction. Blanket lien    The cost of accounts payable paid before the expiration of the discount period. Commercial paper    This financial instrument uses a borrowing firm’s entire inventory of low-priced, fast selling, and fungible products to secure a short-term loan, and allows the borrower to sell items from inventory without the lender’s permission. Commitment fee    A fee charged by a financial institution providing a guaranteed, or revolving, line of credit, on the unused balance of a revolving line of credit. Discount interest loan    A form of unsecured short-term financing used by large, extremely creditworthy business organizations. Factoring    A financial…
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