Question 1

Which one of the following statements is correct if you purchase an item with credit terms of 1/5,net 15?

Accepted Answer

A)   If you pay within 1 day,you will receive a 5 percent discount.
B)   If you pay within 5 days,you will receive a 1 percent discount.
C)   If you do not pay within 15 days,you will be charged interest at a 1.5 percent monthly rate.
D)   If you pay within 15 days,you will receive a 1/5th percent discount.
E)   You must pay the discounted amount within 15 days.F) A) and B)
G) None of the above

Question 2

Which one of the following time periods is included in the accounts receivable period but not in the cash collection period?

Accepted Answer

A)   the period of time between the receipt of a check and the availability of those funds
B)   time it takes a firm to process incoming receipts
C)   period of time a check is in the mail
D)   the amount of time that it takes a bank to credit a firm's account for a deposit made
E)   period of time it takes an invoice to reach a customer by mailF) B) and E)
G) C) and D)

Question 3

The accounts receivable approach to credit policy supports the theory that:

Accepted Answer

A)   a firm's risk of offering credit to a new customer is limited to the variable cost of the sold items.
B)   the best credit policy is an all-cash policy.
C)   the cost of offering credit to a new customer is the same as the cost of offering credit to an existing customer.
D)   foregoing cash discounts is a method of obtaining inexpensive short-term financing.
E)   the default risk of a credit policy is the same as the default risk under an all cash-policy if your customers remain the same.F) A) and E)
G) A) and D)

Question 4

A 2/10,net 30 credit policy:

Accepted Answer

A)   is an expensive form of short-term credit if a buyer foregoes the discount.
B)   provides cheap financing to the buyer for 30 days.
C)   is an inexpensive means of reducing the seller's collection period if every customer takes the discount.
D)   tends to have little effect on the seller's collection period.
E)   tends to increase a firm's investment in receivables as compared to a straight net 30 policy.F) All of the above
G) A) and E)

Question 5

Jillian was recently hired by a major retail store.Her job is to determine the probability that individual customers will fail to pay for their charge sales.Jillian's job best relates to which one of the following?

Accepted Answer

A)   terms of sale
B)   credit analysis
C)   collection policy
D)   payables policy
E)   customer serviceF) C) and D)
G) A) and D)

Question 6

The EOQ model is designed to minimize:

Accepted Answer

A)   production costs.
B)   inventory obsolescence.
C)   the carrying costs of inventory.
D)   the costs of replenishing inventory.
E)   the total costs of holding inventory.F) A) and C)
G) B) and E)

Question 7

The Turn It Up Corporation sells on credit terms of net 30.Its accounts are,on average,6 days past due.Annual credit sales are $7 million.What is the company's balance sheet amount in accounts receivable?

Accepted Answer

A)   $690,411
B)   $723,333
C)   $851,667
D)   $915,407
E)   $923,593F) A) and D)
G) B) and E)

Question 8

Town Hardware sells goods on credit with payment due 30 days after purchase.If payment is not received by the 30th day,the store mails a friendly reminder to the customer.If payment is not received by the 45th day,the store calls the customer and requests payment and also stops offering credit to that customer.These procedures are referred to as the store's:

Accepted Answer

A)   customer service policy.
B)   credit policy.
C)   collection policy.
D)   payables policy.
E)   disbursements policy.F) A) and B)
G) A) and C)

Question 9

Which one of the five Cs of credit refers to a firm's financial reserves?

Accepted Answer

A)   character
B)   capacity
C)   collateral
D)   conditions
E)   capitalF) A) and B)
G) C) and D)

Question 10

You are doing some comparison shopping.Five stores offer the product you want at basically the same price.Which one of the following stores offers the best credit terms if you plan on taking the discount?

Accepted Answer

A)   store A
B)   store B
C)   store C
D)   store D
E)   store EF) A) and D)
G) B) and C)

Question 11

Any written proof that a customer owes you money for goods or services provided is referred to as a(n) :

Accepted Answer

A)   account document.
B)   sales draft.
C)   credit instrument.
D)   commercial paper.
E)   letter of debt.F) A) and B)
G) A) and C)

Question 12

Each year you sell 950 units of a product at a price of $899 each.The variable cost per unit is $575 and the carrying cost per unit is $16.90.You have been buying 100 units at a time.Your fixed cost of ordering is $60.What is the economic order quantity?

Accepted Answer

A)   82 units
B)   95 units
C)   105 units
D)   113 units
E)   124 unitsF) A) and E)
G) A) and D)

Question 13

The Dilana Corporation is considering a change in its cash-only policy.The new terms would be net one period.The required return is 2 percent per period.What is the NPV of the new policy given the following information?

Accepted Answer

A)   -$230,880
B)   -$118,420
C)   $311,508
D)   $328,997
E)   $388,340F) B) and C)
G) None of the above

Question 14

Roger's Store begins each week with 150 phasers in stock.This stock is depleted each week and reordered.The carrying cost per phaser is $48 per year and the fixed order cost is $70.What is the optimal number of orders that should be placed each year?

Accepted Answer

A)   48.69
B)   51.71
C)   54.20
D)   61.10
E)   64.50F) None of the above
G) A) and D)

Question 15

Which one of the following inventory items is probably the most liquid?

Accepted Answer

A)   a custom made set of kitchen cabinets
B)   metal cabinets for dishwashers
C)   wheat stored in a grain silo
D)   a customized drilling press
E)   a partially built modular homeF) A) and D)
G) D) and E)

Question 16

When credit policy is at the optimal point,the:

Accepted Answer

A)   total costs of granting credit will be maximized.
B)   carrying costs of credit will be equal to zero.
C)   opportunity cost of credit will be equal to zero.
D)   carrying costs will equal the opportunity costs.
E)   total costs will equal the opportunity costs.F) B) and E)
G) A) and E)

Question 17

Preston Milled Products currently sells a product with a variable cost per unit of $21 and a unit selling price of $40.At the present time,the firm only sells on a cash basis with monthly sales of 2,800 units.The monthly interest rate is 0.5 percent.What is the switch break-even point if the firm switched to a net 30 credit policy? Assume the selling price per unit and the variable costs per unit remain constant.

Accepted Answer

A)   2,830 units
B)   2,910 units
C)   3,333 units
D)   3,414 units
E)   3,526 unitsF) All of the above
G) A) and B)

Question 18

Your current sales consist of 45 units per month at a price of $390 a unit.You are weighing the pros and cons of switching to a net 30 credit policy from your current cash only policy.If you decide to switch your credit policy you also plan to increase the sales price to $410 a unit.The monthly interest rate is 1.4 percent.What is the break-even default rate of the proposed switch?

Accepted Answer

A)   3.55 percent
B)   3.68 percent
C)   4.29 percent
D)   4.71 percent
E)   4.88 percentF) A) and B)
G) A) and C)

Question 19

Polly's Home Accents currently sells 320 units a month at a price of $59 a unit.Polly thinks she can increase her sales by an additional 55 units if she switches to a net 30 credit policy.The monthly interest rate is 0.4 percent and the variable cost per unit is $32.What is the net present value of the proposed credit policy switch?

Accepted Answer

A)   $350,610
B)   $350,895
C)   $426,507
D)   $621,929
E)   $821,135F) C) and D)
G) A) and D)

Question 20

You are considering switching from an all cash credit policy to a net 30 credit policy.You do not expect the switch to affect either your sales quantity or your sales price.Ignoring interest and assuming that every month has 30 days,your net present value of the switch will be equal to:

Accepted Answer

A)   zero.
B)   your selling price per unit.
C)   your selling price per unit multiplied by -1.
D)   your selling price per unit multiplied by -30.
E)   your total monthly sales multiplied by -1.F) B) and D)
G) C) and E)

Exam 20: Credit and Inventory Managementpart Eight: Topics in Corporate Finance

Each year you sell 950 units of a product at a price of $899 each.The variable cost per unit is $575 and the carrying cost per unit is $16.90.You have been buying 100 units at a time.Your fixed cost of ordering is $60.What is the economic order quantity?

Correct Answer
verified

You are doing some comparison shopping.Five stores offer the product you want at basically the same price.Which one of the following stores offers the best credit terms if you plan on taking the discount?

Correct Answer
verified

When credit policy is at the optimal point,the:

Correct Answer
verified

You are considering switching from an all cash credit policy to a net 30 credit policy.You do not expect the switch to affect either your sales quantity or your sales price.Ignoring interest and assuming that every month has 30 days,your net present value of the switch will be equal to:

Correct Answer
verified

The EOQ model is designed to minimize:

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Any written proof that a customer owes you money for goods or services provided is referred to as a(n) :

Correct Answer
verified

The accounts receivable approach to credit policy supports the theory that:

Correct Answer
verified

Which one of the five Cs of credit refers to a firm's financial reserves?

Correct Answer
verified

Jillian was recently hired by a major retail store.Her job is to determine the probability that individual customers will fail to pay for their charge sales.Jillian's job best relates to which one of the following?

Correct Answer
verified

Which one of the following inventory items is probably the most liquid?

Correct Answer
verified

The Dilana Corporation is considering a change in its cash-only policy.The new terms would be net one period.The required return is 2 percent per period.What is the NPV of the new policy given the following information?

Correct Answer
verified

Which one of the following time periods is included in the accounts receivable period but not in the cash collection period?

Correct Answer
verified

Which one of the following statements is correct if you purchase an item with credit terms of 1/5,net 15?

Correct Answer
verified

The Turn It Up Corporation sells on credit terms of net 30.Its accounts are,on average,6 days past due.Annual credit sales are $7 million.What is the company's balance sheet amount in accounts receivable?

Correct Answer
verified

Roger's Store begins each week with 150 phasers in stock.This stock is depleted each week and reordered.The carrying cost per phaser is $48 per year and the fixed order cost is $70.What is the optimal number of orders that should be placed each year?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

A 2/10,net 30 credit policy:

Correct Answer
verified

Exam 20: Credit and Inventory Managementpart Eight: Topics in Corporate Finance

Each year you sell 950 units of a product at a price of $899 each.The variable cost per unit is $575 and the carrying cost per unit is $16.90.You have been buying 100 units at a time.Your fixed cost of ordering is $60.What is the economic order quantity?

Correct AnswerverifiedShow Answer

You are doing some comparison shopping.Five stores offer the product you want at basically the same price.Which one of the following stores offers the best credit terms if you plan on taking the discount?

Correct AnswerverifiedShow Answer

When credit policy is at the optimal point,the:

Correct AnswerverifiedShow Answer

You are considering switching from an all cash credit policy to a net 30 credit policy.You do not expect the switch to affect either your sales quantity or your sales price.Ignoring interest and assuming that every month has 30 days,your net present value of the switch will be equal to:

Correct AnswerverifiedShow Answer

The EOQ model is designed to minimize:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Any written proof that a customer owes you money for goods or services provided is referred to as a(n) :

Correct AnswerverifiedShow Answer

The accounts receivable approach to credit policy supports the theory that:

Correct AnswerverifiedShow Answer

Which one of the five Cs of credit refers to a firm's financial reserves?

Correct AnswerverifiedShow Answer

Jillian was recently hired by a major retail store.Her job is to determine the probability that individual customers will fail to pay for their charge sales.Jillian's job best relates to which one of the following?

Correct AnswerverifiedShow Answer

Which one of the following inventory items is probably the most liquid?

Correct AnswerverifiedShow Answer

The Dilana Corporation is considering a change in its cash-only policy.The new terms would be net one period.The required return is 2 percent per period.What is the NPV of the new policy given the following information?

Correct AnswerverifiedShow Answer

Which one of the following time periods is included in the accounts receivable period but not in the cash collection period?

Correct AnswerverifiedShow Answer

Which one of the following statements is correct if you purchase an item with credit terms of 1/5,net 15?

Correct AnswerverifiedShow Answer

The Turn It Up Corporation sells on credit terms of net 30.Its accounts are,on average,6 days past due.Annual credit sales are $7 million.What is the company's balance sheet amount in accounts receivable?

Correct AnswerverifiedShow Answer

Roger's Store begins each week with 150 phasers in stock.This stock is depleted each week and reordered.The carrying cost per phaser is $48 per year and the fixed order cost is $70.What is the optimal number of orders that should be placed each year?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A 2/10,net 30 credit policy:

Correct AnswerverifiedShow Answer

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