Podcast
Questions and Answers
Commercial paper is an ______ debt that is issued by a company and has a fixed maturity ranging from 1 to 270 days.
Commercial paper is an ______ debt that is issued by a company and has a fixed maturity ranging from 1 to 270 days.
unsecured
A company can sell its commercial paper directly to ______, such as money market funds, or through a dealer in exchange for a small commission.
A company can sell its commercial paper directly to ______, such as money market funds, or through a dealer in exchange for a small commission.
investors
Factoring is a financial transaction in which a company sells its ______ to a finance company that specializes in buying receivables at a discount.
Factoring is a financial transaction in which a company sells its ______ to a finance company that specializes in buying receivables at a discount.
accounts receivable
Field Warehouse Financing uses a company's ______ as collateral for a loan.
Field Warehouse Financing uses a company's ______ as collateral for a loan.
Signup and view all the answers
The inventory to be used as collateral is segregated from the rest of the ______ by a fence.
The inventory to be used as collateral is segregated from the rest of the ______ by a fence.
Signup and view all the answers
Floor Planning is a method of financing ______ purchases, where a lender pays for assets that have been ordered by a distributor or retailer.
Floor Planning is a method of financing ______ purchases, where a lender pays for assets that have been ordered by a distributor or retailer.
Signup and view all the answers
The arrangement of Floor Planning is most commonly used when large ______, such as automobiles or household appliances, are involved.
The arrangement of Floor Planning is most commonly used when large ______, such as automobiles or household appliances, are involved.
Signup and view all the answers
In Floor Planning, the entity at ______ in this arrangement is the lender, which is relying upon the sale of the underlying assets in order to be repaid.
In Floor Planning, the entity at ______ in this arrangement is the lender, which is relying upon the sale of the underlying assets in order to be repaid.
Signup and view all the answers
The lender may demand that all assets acquired under the floor planning arrangement be sold at a price that is no lower than its original ______.
The lender may demand that all assets acquired under the floor planning arrangement be sold at a price that is no lower than its original ______.
Signup and view all the answers
A ______ covers the purchase of a specific asset, which is paid for by the lease provider on the company's behalf.
A ______ covers the purchase of a specific asset, which is paid for by the lease provider on the company's behalf.
Signup and view all the answers
In a Capital Lease, the lessee can only record the ______ portion of a capital lease payment as expense.
In a Capital Lease, the lessee can only record the ______ portion of a capital lease payment as expense.
Signup and view all the answers
An Operating Lease typically does not cover the full ______ of the asset.
An Operating Lease typically does not cover the full ______ of the asset.
Signup and view all the answers
A Line of Credit is a commitment from a lender to pay a company whenever it needs ______, up to a preset maximum level.
A Line of Credit is a commitment from a lender to pay a company whenever it needs ______, up to a preset maximum level.
Signup and view all the answers
An Asset-Based Loan is a loan that uses fixed assets or ______ as collateral.
An Asset-Based Loan is a loan that uses fixed assets or ______ as collateral.
Signup and view all the answers
In a Capital Lease, the lessee records the underlying asset as its ______ in its general ledger.
In a Capital Lease, the lessee records the underlying asset as its ______ in its general ledger.
Signup and view all the answers
A Line of Credit will charge ______ as soon as money is borrowed.
A Line of Credit will charge ______ as soon as money is borrowed.
Signup and view all the answers
Study Notes
Types of Debt
- Commercial Paper: unsecured debt with a fixed maturity of 1-270 days, used to meet short-term working capital obligations, sold at a discount from face value, with the discount rate increasing with term length.
Factoring
- A financial transaction where a company sells its accounts receivable to a factor at a discount, also known as invoice factoring or accounts receivable financing.
Field Warehouse Financing
- A loan using a company's inventory as collateral, with the inventory segregated and controlled, often stored in a public warehouse, and signs indicating a lien on the inventory.
Floor Planning
- A financing method for inventory purchases, where a lender pays for assets and is repaid from sale proceeds, commonly used for large assets like cars or appliances, with the lender at risk and demanding sale at original price, regular inventory counting, and loan repayment by a certain date.
Leases
- A contract covering the purchase of a specific asset, with the lease provider paying on the company's behalf, and the company paying a fixed rate including interest and principal.
- Capital Lease: the lessee records the asset as property, with only the interest portion of the lease payment recorded as expense.
- Operating Lease: the lessor records the asset, with the lessee recording lease payments as an expense, typically not covering the full asset life and without a small-dollar buyout option.
Line of Credit
- A lender's commitment to pay a company up to a preset maximum, secured by company assets, with an interest rate near the prime rate, allowing flexible borrowing and repayment.
Loans
- Asset-Based Loans: a loan using fixed assets or inventory as collateral, providing a flexible loan amount based on the assets' value.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Description
Understand commercial paper, its use, and characteristics. Learn how companies issue it to meet short-term working capital obligations and its relation to interest rates.
