Fundamentals of Financial Management, Third Edition

OBJECTIVE-TYPE QUESTIONS

1. Mark true or false.
   1. Trade credit represents a non-negotiated, spontaneous flow of funds.
   2. Open account involves writing of instruments effecting transaction.
   3. In case of 2/10 net 60, the firm has an explicit cost if it avails of the discount.
   4. In case of 2/10 net 60, the firm has explicit cost if it does not make payment within 60 days.
   5. Mortgage involves transfer of raw material to the lender.
   6. Cash credit and overdraft is the same mode of lending.
2. Choose the most suitable answer.
   1. An increase in the size of operation helps:
      1. increase the size of trade credit
      2. decrease the size of trade credit
      3. create no change in trade credit
   2. The size of overdraft depends on:
      1. value of security of current assets
      2. value of security of ...