Introduction to Finance

517
Review Questions
 1. 
(LO 16.1)
What is net working capital? Briefl y describe the 
fi nancing implications when net working capital is positive.
 2. 
(LO 16.1)
What are “permanent” current assets? How do “tem-
porary” current assets diff er from permanent current assets?
 3. 
(LO 16.1)
Explain the strategies businesses can use to fi nance 
their assets with short-term funds and with long-term funds.
 4. 
(LO 16.1)
Explain how a conservative approach to fi nancing a fi rm’s 
assets is a low-risk/low-expected return strategy whereas an aggressive 
approach to fi nancing is a high-risk/high-expected return strategy.
 5. 
(LO 16.2)
What infl uences aff ect the nature of the demand for 
short-term versus long-term funds?
 6. 
(LO 16.3)
Prepare a list of advantages and disadvantages of 
short-term bank borrowing over other short-term fi nancing sources.
 7. 
(LO 16.3)
What is meant by an unsecured loan? Are these loans 
an important form of bank lending?
 8. 
(LO 16.3) 
Explain what a bank line of credit is.
 9. 
(LO 16.3)
Explain how discounting and compensating balances 
aff ect the eff ective cost of bank fi nancing.
 10. 
(LO 16.3)
Describe the revolving credit agreement and compare 
it with the bank line of credit.
 11. 
(LO 16.3)
How does the U.S. Small Business Administration 
provide fi nancing to businesses?
 12. 
(LO 16.3)
What is the JOBS Act and what is its purpose?
 13. 
(LO 16.4)
What is trade credit? Briefl y describe some of the 
possible terms for trade credit.
 14.