True/False Quiz

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Chapter 11:   Short-Term Financing

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1. Trade credit is a system of barter or exchange of "credits" instead of cash.

2. A firm wanting trade credit must pledge collateral.

3. The most common type of spontaneous financing is a commercial bank loan.

4. More frequently than not, the effective cost of a secured short-term loan is higher than the effective cost of an unsecured short-term loan.

5. As sales increase, labor costs and thus accrued wages generally increase almost proportionately.

6. Stretching accounts payable is a cost-free method of financing a business.

7. Money-market credit and short-term loans are forms of negotiated (or external) short-term financing.

8. A cleanup provision is an environmental protection policy commitment often attached to a bank line of credit.

9. Accounts payable and inventory are the principal assets used to secure short-term business loans.

10. A secured loan provides the lender two sources of loan repayment: the cash-flow ability of the firm and the collateral value of the security.

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