Question

Please match the correct definitions withe the correct terms.

Part A

Descriptions	Terms
This base, or foundational, interest rate is the rate that banks charge on large loans to their most creditworthy business borrowers; rates charged to other, riskier, customers are scaled up from this rate.	Accruals
A legal claim against a borrowing firm’s entire inventory created to secure a loan in which the borrower retains control over the inventory and can sell items without the lender’s permission.	Blanket lien
An agreement that specifies the terms and conditions of a loan, including its amount, term, rate of interest, and repayment provisions.	Commercial paper
A loan in which the borrower prepays the interest.	Commitment fee
Often recurring, these short-term liabilities fluctuate spontaneously with the firm’s production operations.	Discount interest loan
A form of financing resulting from the sale of a firm’s accounts receivable at a discount from their face value to a third party who accepts recourse for the receivables’ nonpayment.	Factoring
Unsecured short-term promissory notes issued by large, exceptionally creditworthy businesses.	Free trade credit
The effective cost of accounts payable paid during the discount period.	Prime rate
The fee charged on the unused portion of a revolving line of credit to compensate the financial institution for setting aside the funds so that they are guaranteed to be available when the borrower wants them.	Promissory note
A liability that is originally expected to be repaid within one year.	Short-term credit

Part B

Descriptions	Terms
Of all possible financing strategies, this particular approach uses the largest amount of long-term debt, equity, and spontaneous current liabilities, all other things remaining constant.	Conservative financing approach
The general term used to collectively describe the firm’s current asset investment, including its cash, marketable securities, accounts receivable, and inventory.	Days sales outstanding
This period is equivalent to the average age of the firm’s inventory, as calculated by dividing the firm’s inventory balance by its daily cost of goods sold.	Gross working capital
Its value is calculated by dividing a firm’s account receivable balance by its average daily credit sales.	Inventory conversion period
A current asset financing strategy in which the cash generated by the conversion of the firm’s current assets is used to repay, or liquidate, the firm’s current liabilities used to finance them.	Net working capital
The average elapsed time between the purchase of raw materials and labor using an account payable and the payment of cash for them.	Payables deferral period
Minimum current asset balances below which a firm’s investment rarely drops.	Permanent current assets
The amount of current assets financed with long-term liabilities; calculated as the difference between a firm’s current assets and its current liabilities.	Self-liquidating approach

Answer 1

Descriptions	Terms
This base, or foundational, interest rate is the rate that banks charge on large loans to their most creditworthy business borrowers; rates charged to other, riskier, customers are scaled up from this rate.	Prime rate
A legal claim against a borrowing firm’s entire inventory created to secure a loan in which the borrower retains control over the inventory and can sell items without the lender’s permission.	Blanket Loan
An agreement that specifies the terms and conditions of a loan, including its amount, term, rate of interest, and repayment provisions.	Promissory Note
A loan in which the borrower prepays the interest.	Accruals
Often recurring, these short-term liabilities fluctuate spontaneously with the firm’s production operations.	Free Trade Credit
A form of financing resulting from the sale of a firm’s accounts receivable at a discount from their face value to a third party who accepts recourse for the receivables’ nonpayment.	Factoring
Unsecured short-term promissory notes issued by large, exceptionally creditworthy businesses.	Commercial Paper
The effective cost of accounts payable paid during the discount period.	Discount Interest loan
The fee charged on the unused portion of a revolving line of credit to compensate the financial institution for setting aside the funds so that they are guaranteed to be available when the borrower wants them.	Commitment fee
A liability that is originally expected to be repaid within one year.	Short-term credit

Part B

Of all possible financing strategies, this particular approach uses the largest amount of long-term debt, equity, and spontaneous current liabilities, all other things remaining constant.	Conservative Financing Approach
The general term used to collectively describe the firm’s current asset investment, including its cash, marketable securities, accounts receivable, and inventory.	Gross Working capital
This period is equivalent to the average age of the firm’s inventory, as calculated by dividing the firm’s inventory balance by its daily cost of goods sold.	Inventory conversion period
Its value is calculated by dividing a firm’s account receivable balance by its average daily credit sales.	Days sales outstanding
A current asset financing strategy in which the cash generated by the conversion of the firm’s current assets is used to repay, or liquidate, the firm’s current liabilities used to finance them.	Self liquidating approach
The average elapsed time between the purchase of raw materials and labor using an account payable and the payment of cash for them.	Payables deferral Period
Minimum current asset balances below which a firm’s investment rarely drops.	Permanent Current Assets
The amount of current assets financed with long-term liabilities; calculated as the difference between a firm’s current assets and its current liabilities.	Net Working capital