Corporate Finance Review for Test 2

Corporate Finance Review for Test 2 1.) Blanket Liens (all inventory, in general) 2.) Warehousing (segments of inventory, identified) 3.) Trust Receipts / floor planning (individual items) - correct answersWhat are the three ways a company can use inventory as collateral? 1.) Character- have you been in legal trouble? 2.) Capital- the assets that people have 3.) Capacity- do you have the income? 4.) Conditions- what are the economic conditions at the time? 5.) Collateral- the asset that's pledged - correct answersWhat are the 5 C's of credit? 1.) Factoring- selling them 2.) Securitization- converting them to securities - correct answersWhat are the two ways accounts receivable can be used to obtain cash OTHER than collecting it immediately? 1.) The interest rates are volatile, meaning they change often 2.) The firm may not be able to renew the loan because the investors could lose money, and thus, would not want to loan out money - correct answersWhat is a risk of using short-term loans often? 6%, because 72 / 12 = 6 - correct answersUsing the Rule of 72, if we want our money to double in 12 years, what rate of interest would we need? 9 years, because 72 / 8 = 9 - correct answersAccording to the Rule of 72, how long will it take our money to double at 8%? 75 basis points - correct answersHow many basis points different are these two loans: 5.75% and 5.00% A formula that calculates how long it will take for an investment to double Ex: An investment earning 3% interest will take 24 years to double because 72 / 3 = 24 - correct answersWhat is the Rule of 72? Accounts Receivable Turnover = Sales / Accounts Receivable - correct answersWhat is the formula for accounts receivable turnover? Amount of money a company needs to leave at a bank to get a loan - correct answersWhat is a compensating balance