Question 1

Which one of the following statements is correct in regards to credit periods?

Accepted Answer

A)  Perishable items tend to have longer credit periods.
B)  Items with low markups tend to have longer credit periods.
C)  Smaller accounts tend to have longer credit periods.
D)  Different customers may be offered different credit periods by the same firm.
E)  Newer products tend to have shorter credit periods.F) A) and B)
G) B) and E)

Question 2

Which one of the following inventory-related costs is considered a shortage cost?

Accepted Answer

A)  storage costs
B)  insurance cost
C)  cost of safety reserves
D)  obsolescence cost
E)  opportunity cost of capital used for inventory purchasesF) All of the above
G) A) and B)

Question 3

You are considering renting a kiosk in the local mall for a period of three months.Any sale you make will be a one-time sale.There is only a 79 percent chance you will collect payment on a credit sale.The product you want to sell has a variable cost of $3.88 and a sales price of $4.99.The monthly interest rate is 1.5 percent.Should you offer people 30 days to pay? Why or why not?

Accepted Answer

A)  yes; because the NPV of a credit sale is $0.09.
B)  yes; because the NPV of a credit sale is $0.03.
C)  no; because the NPV of a credit sale is -$0.08.
D)  no; because the NPV of a credit sale is -$0.02.
E)  It doesn't matter because the NPV of a credit sale is approximately zero.F) A) and E)
G) A) and D)

Question 4

Assume that RSF is a wholly-owned subsidiary of the Rolled Steel Company.RSF provides credit financing solely for large ticket items purchased from the Rolled Steel Company.Which one of the following terms describes RSF?

Accepted Answer

A)  credit department
B)  parent company
C)  captive finance company
D)  credit union
E)  service unitF) C) and E)
G) B) and D)

Question 5

Music City, Inc.has an average collection period of 62 days.Its average daily investment in receivables is $50,000.What are the annual credit sales?

Accepted Answer

A)  $268,407
B)  $277,109
C)  $294,355
D)  $325,893
E)  $767,123F) B) and E)
G) A) and B)

Question 6

Cohen Industrial Products uses 2,100 switch assemblies per week and then reorders another 2,100.The relevant carrying cost per switch assembly is $18, and the fixed order cost is $300.What is the EOQ?

Accepted Answer

A)  1,279.84
B)  1,809.97
C)  1,907.88
D)  2,278.42
E)  2,698.15F) A) and B)
G) A) and E)

Question 7

You are trying to attract new customers that you feel could become repeat customers.The average selling price of your products is $69 each with a $41 per unit variable cost.The monthly interest rate is 1.5 percent.Your experience tells you that 8 percent of these customers will never pay their bill.What is the value of a new customer who does not default on his or her bill?

Accepted Answer

A)  $1,733
B)  $1,867
C)  $2,617
D)  $4,817
E)  $8,867F) All of the above
G) B) and D)

Question 8

Quest, Inc., is considering a change in its cash-only sales policy.The new terms of sale would be one month.The required return is 1.6 percent per month.Based on the following information, what is the NPV of the new policy?

Accepted Answer

A)  $28,750
B)  $32,500
C)  $35,000
D)  $38,250
E)  $40,000F) A) and C)
G) All of the above

Question 9

A firm sells 4,500 units of an item each year.The carrying cost per unit is $2.15 and the fixed costs per order are $69.What is the economic order quantity?

Accepted Answer

A)  374 units
B)  421 units
C)  497 units
D)  537 units
E)  623 unitsF) All of the above
G) C) and E)

Question 10

All else equal, firms with (1) excess capacity, (2) low variable costs, and (3) repeat customers are more apt to offer liberal credit terms to their customers than are other firms.Explain why this tendency exists.

Accepted Answer

Firms with excess capacity are more apt ...

Question 11

Geoff Industries offers its credit customers a 2 percent discount if they pay within 10 days.This discount is referred to as a:

Accepted Answer

A)  cash discount.
B)  purchase discount.
C)  collection discount.
D)  market discount.
E)  receivables discount.F) B) and E)
G) A) and B)

Question 12

What is the primary purpose of credit analysis?

Accepted Answer

A)  determine the optimal credit period
B)  establish the effectiveness of granting a cash discount
C)  determine the optimal discount period, if any
D)  access the frequency and amount of sales by customer
E)  evaluate whether or not a customer will payF) A) and D)
G) C) and D)

Question 13

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) A) and E)
G) C) and E)

Question 14

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) C) and D)
G) A) and B)

Question 15

A firm's total investment in receivables depends primarily on the firm's:

Accepted Answer

A)  total sales and cash discount period.
B)  cash to credit sales ratio.
C)  bad debt ratio.
D)  average collection period and amount of credit sales.
E)  amount of credit sales and cash discount percentage.F) A) and C)
G) C) and D)

Question 16

Which one of the five Cs of credit refers to the general economic situation in the customer's line of business?

Accepted Answer

A)  capacity
B)  character
C)  conditions
D)  capital
E)  collateralF) C) and D)
G) None of the above

Question 17

Your current sales consist of 32 units per month at a price of $225 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 $240 a unit.If you make the switch you do not expect your total monthly sales quantity to change but you do expect a 3 percent default rate.The monthly interest rate is 1.5 percent.What is the net present value of the proposed credit policy switch?

Accepted Answer

A)  $6,727
B)  $6,893
C)  $7,965
D)  $9,440
E)  $9,481F) A) and E)
G) B) and C)

Question 18

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) None of the above
G) A) and B)

Question 19

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) B) and E)
G) None of the above

Question 20

You are viewing a graph which compares costs with the amount of credit extended.Both the carrying costs and the opportunity costs of credit are depicted.What is the function called that represents the summation of these carrying and opportunity costs?

Accepted Answer

A)  opportunity cost curve
B)  credit extension curve
C)  credit cost curve
D)  terms of sale graph
E)  optimal sales graphF) A) and C)
G) A) and B)

Exam 20: Financial Risk Management

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
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Correct Answer
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A firm's total investment in receivables depends primarily on the firm's:

Correct Answer
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Geoff Industries offers its credit customers a 2 percent discount if they pay within 10 days.This discount is referred to as a:

Correct Answer
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Which one of the following statements is correct in regards to credit periods?

Correct Answer
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Quest, Inc., is considering a change in its cash-only sales policy.The new terms of sale would be one month.The required return is 1.6 percent per month.Based on the following information, what is the NPV of the new policy?

Correct Answer
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A 2/10, net 30 credit policy:

Correct Answer
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Correct Answer
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Correct Answer
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What is the primary purpose of credit analysis?

Correct Answer
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Which one of the following inventory-related costs is considered a shortage cost?

Correct Answer
verified

Assume that RSF is a wholly-owned subsidiary of the Rolled Steel Company.RSF provides credit financing solely for large ticket items purchased from the Rolled Steel Company.Which one of the following terms describes RSF?

Correct Answer
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Correct Answer
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Which one of the five Cs of credit refers to the general economic situation in the customer's line of business?

Correct Answer
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You are viewing a graph which compares costs with the amount of credit extended.Both the carrying costs and the opportunity costs of credit are depicted.What is the function called that represents the summation of these carrying and opportunity costs?

Correct Answer
verified

All else equal, firms with (1) excess capacity, (2) low variable costs, and (3) repeat customers are more apt to offer liberal credit terms to their customers than are other firms.Explain why this tendency exists.

Correct Answer
verified
Firms with excess capacity are more apt ...
View Answer

Cohen Industrial Products uses 2,100 switch assemblies per week and then reorders another 2,100.The relevant carrying cost per switch assembly is $18, and the fixed order cost is $300.What is the EOQ?

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

Correct Answer
verified

A firm sells 4,500 units of an item each year.The carrying cost per unit is $2.15 and the fixed costs per order are $69.What is the economic order quantity?

Correct Answer
verified

Music City, Inc.has an average collection period of 62 days.Its average daily investment in receivables is $50,000.What are the annual credit sales?

Correct Answer
verified

Exam 20: Financial Risk Management

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

A firm's total investment in receivables depends primarily on the firm's:

Correct AnswerverifiedShow Answer

Geoff Industries offers its credit customers a 2 percent discount if they pay within 10 days.This discount is referred to as a:

Correct AnswerverifiedShow Answer

Which one of the following statements is correct in regards to credit periods?

Correct AnswerverifiedShow Answer

Quest, Inc., is considering a change in its cash-only sales policy.The new terms of sale would be one month.The required return is 1.6 percent per month.Based on the following information, what is the NPV of the new policy?

Correct AnswerverifiedShow Answer

A 2/10, net 30 credit policy:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

What is the primary purpose of credit analysis?

Correct AnswerverifiedShow Answer

Which one of the following inventory-related costs is considered a shortage cost?

Correct AnswerverifiedShow Answer

Assume that RSF is a wholly-owned subsidiary of the Rolled Steel Company.RSF provides credit financing solely for large ticket items purchased from the Rolled Steel Company.Which one of the following terms describes RSF?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which one of the five Cs of credit refers to the general economic situation in the customer's line of business?

Correct AnswerverifiedShow Answer

You are viewing a graph which compares costs with the amount of credit extended.Both the carrying costs and the opportunity costs of credit are depicted.What is the function called that represents the summation of these carrying and opportunity costs?

Correct AnswerverifiedShow Answer

All else equal, firms with (1) excess capacity, (2) low variable costs, and (3) repeat customers are more apt to offer liberal credit terms to their customers than are other firms.Explain why this tendency exists.

Correct AnswerverifiedFirms with excess capacity are more apt ...View AnswerShow Answer

Cohen Industrial Products uses 2,100 switch assemblies per week and then reorders another 2,100.The relevant carrying cost per switch assembly is $18, and the fixed order cost is $300.What is the EOQ?

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

A firm sells 4,500 units of an item each year.The carrying cost per unit is $2.15 and the fixed costs per order are $69.What is the economic order quantity?

Correct AnswerverifiedShow Answer

Music City, Inc.has an average collection period of 62 days.Its average daily investment in receivables is $50,000.What are the annual credit sales?

Correct AnswerverifiedShow Answer

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Firms with excess capacity are more apt ...
View Answer

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Correct Answer
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