Question 1

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 E)
G) A) and B)

Question 2

The incremental investment in receivables under the accounts receivable approach is equal to:

Accepted Answer

A)  P - vQ′.
B)  PQ′.
C)  PQ + v(Q′ - Q) .
D)  P(Q′ - Q) .
E)  PQ(Q′ - Q) .F) All of the above
G) D) and E)

Question 3

The optimal amount of credit equates the incremental costs of carrying the increase in accounts receivable to the incremental:

Accepted Answer

A)  decrease in the cash cycle.
B)  benefit from decreasing the inventory level.
C)  cash flows from increased sales.
D)  increase in bad debts.
E)  gain in net profits.F) A) and E)
G) A) and C)

Question 4

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 C)
G) All of the above

Question 5

Which one of the following is a system for managing demand-dependent inventories that minimizes the inventory levels of a firm?

Accepted Answer

A)  just-in-time inventory
B)  turnover planning
C)  net working capital planning
D)  inventory scoring
E)  inventory rankingF) All of the above
G) A) and C)

Question 6

A cash discount of 2/5, net 30:

Accepted Answer

A)  grants customers 30 days to pay after the discount period expires.
B)  offers customers a maximum of 30 days credit.
C)  grants free credit for a period of 30 days.
D)  charges a higher price to a cash customer than to a customer who pays in 2 days.
E)  grants customers 2 days to pay if they want the 5 percent discount.F) C) and E)
G) C) and D)

Question 7

The Green Hornet sells earnings forecasts for international securities.Its credit terms are 2/10, net 30.Based on experience, 55 percent of all customers will take the discount.The firm sells 2,700 forecasts every month at a price of $1,100 each.What is the firm's average balance sheet amount in accounts receivable?

Accepted Answer

A)  $940,274
B)  $1,408,272
C)  $1,855,233
D)  $1,867,012
E)  $1,915,387F) B) and C)
G) C) and D)

Question 8

Under credit terms of 1/5, net 15, customers should:

Accepted Answer

A)  always pay on the 15th day.
B)  take the 5 percent discount and pay immediately.
C)  take the discount and pay on the day following the day of sale.
D)  either take the discount or pay on the 15th day.
E)  both take the discount and pay on the 15th day.F) A) and B)
G) A) and C)

Question 9

Which do you feel is the more appropriate upper limit for the credit period that a seller offers to a buyer: the buyer's operating cycle or the buyer's inventory period?

Accepted Answer

The operating cycle is the sum of the in...

Question 10

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) B) and D)

Question 11

Which one of the following credit instruments is commonly used in international commerce?

Accepted Answer

A)  open account
B)  sight draft
C)  time draft
D)  banker's acceptance
E)  promissory noteF) A) and B)
G) A) and C)

Question 12

A conditional sales contract:

Accepted Answer

A)  passes title to the goods sold to the buyer at the time the contract is signed.
B)  normally calls for one lump sum payment on the contract payment date.
C)  generally has a built-in interest cost.
D)  is payable immediately upon receipt.
E)  is a formal bid for a project.F) All of the above
G) B) and E)

Question 13

A supplier grants your firm credit terms of 2/10, net 40.What is the effective annual rate of the discount if the firm purchases $4,800 worth of merchandise?

Accepted Answer

A)  27.24 percent
B)  26.57 percent
C)  28.80 percent
D)  29.03 percent
E)  29.27 percentF) A) and C)
G) B) and D)

Question 14

Which of the following statements correctly reflect the effects of granting credit to customers?
I.Total revenues may increase if both the quantity sold and the price per unit increase when credit is granted.
II.A firm's cash cycle generally increases if credit is granted, all else equal.
III.Both the cost of default and the cost of discounts must be considered before granting credit.
IV.A firm may have to increase its long-term borrowing if it decides to grant credit to its customers.

Accepted Answer

A)  I, II, and III only
B)  II, III, and IV only
C)  I, III, and IV only
D)  I, II, and IV only
E)  I, II, III, and IVF) A) and C)
G) All of the above

Question 15

A just-in-time inventory system:
I.when implemented properly reduces the cost of inventory to zero.
II.increases the inventory turnover rate.
III.is sufficient to handle immediate production needs.
IV.minimizes the costs of holding inventory.

Accepted Answer

A)  I and III only
B)  II and IV only
C)  I, II, and IV only
D)  II, III, and IV only
E)  I, II, III, and IVF) B) and D)
G) All of the above

Question 16

The best-selling pair of roller skates The Teen Store offers sells for $79.99 a pair.The store consistently sells 5,700 pairs of these roller skates every year.The fixed costs to order more skates is $68 and the carrying costs are $1.95 per pair.What is the economic order quantity?

Accepted Answer

A)  446 pairs
B)  515 pairs
C)  529 pairs
D)  631 pairs
E)  648 pairsF) B) and E)
G) A) and B)

Question 17

Under your current cash sales only policy you sell 132 units a month for a total sales value of $9,900.Your variable cost per unit is $44 and your monthly interest rate is 1 percent.Based on a recent survey, you believe that you can sell an additional 25 units per month if you offer a net 30 credit policy.What is the net present value of the proposed switch using the accounts receivable approach?

Accepted Answer

A)  $65,976
B)  $66,500
C)  $69,081
D)  $70,224
E)  $73,566F) A) and D)
G) C) and E)

Question 18

You are currently selling 72 units a month at a price of $210 a unit.Your variable cost of each unit is $130.If you switch from your current cash sales only policy to a net 30 policy you think your sales will increase to a total of 95 units per month.The monthly interest rate is 1.5 percent.What is the net present value of this proposed switch using the accounts receivable approach?

Accepted Answer

A)  $104,557
B)  $114,829
C)  $134,822
D)  $136,516
E)  $141,520F) B) and D)
G) C) and D)

Question 19

The basic factors to be evaluated in the credit evaluation process, the five Cs of credit, are:

Accepted Answer

A)  conditions, control, cessation, capital, and capacity.
B)  conditions, character, capital, control, and capacity.
C)  capital, collateral, control, character, and capacity.
D)  character, capacity, control, cessation, and collateral.
E)  character, capacity, capital, collateral, and conditions.F) D) and E)
G) A) and D)

Question 20

When evaluating the creditworthiness of a customer, the term character refers to the:

Accepted Answer

A)  nature of the cash flows of the customer's business.
B)  customer's financial resources.
C)  types of assets the customer wants to pledge as collateral.
D)  customer's willingness to pay bills in a timely fashion.
E)  nature of the customer's line of work.F) C) and D)
G) B) and D)

Exam 20: Financial Risk Management

Correct Answer
verified

Which do you feel is the more appropriate upper limit for the credit period that a seller offers to a buyer: the buyer's operating cycle or the buyer's inventory period?

Correct Answer
verified
The operating cycle is the sum of the in...
View Answer

Correct Answer
verified

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

Which one of the following is a system for managing demand-dependent inventories that minimizes the inventory levels of a firm?

Correct Answer
verified

Which one of the following credit instruments is commonly used in international commerce?

Correct Answer
verified

A just-in-time inventory system: I.when implemented properly reduces the cost of inventory to zero. II.increases the inventory turnover rate. III.is sufficient to handle immediate production needs. IV.minimizes the costs of holding inventory.

Correct Answer
verified

A supplier grants your firm credit terms of 2/10, net 40.What is the effective annual rate of the discount if the firm purchases $4,800 worth of merchandise?

Correct Answer
verified

The best-selling pair of roller skates The Teen Store offers sells for $79.99 a pair.The store consistently sells 5,700 pairs of these roller skates every year.The fixed costs to order more skates is $68 and the carrying costs are $1.95 per pair.What is the economic order quantity?

Correct Answer
verified

A cash discount of 2/5, net 30:

Correct Answer
verified

Under credit terms of 1/5, net 15, customers should:

Correct Answer
verified

The optimal amount of credit equates the incremental costs of carrying the increase in accounts receivable to the incremental:

Correct Answer
verified

When evaluating the creditworthiness of a customer, the term character refers to the:

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

A conditional sales contract:

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

The incremental investment in receivables under the accounts receivable approach is equal to:

Correct Answer
verified

The basic factors to be evaluated in the credit evaluation process, the five Cs of credit, are:

Correct Answer
verified

Exam 20: Financial Risk Management

Correct AnswerverifiedShow Answer

Which do you feel is the more appropriate upper limit for the credit period that a seller offers to a buyer: the buyer's operating cycle or the buyer's inventory period?

Correct AnswerverifiedThe operating cycle is the sum of the in...View AnswerShow Answer

Correct AnswerverifiedShow Answer

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

Which one of the following is a system for managing demand-dependent inventories that minimizes the inventory levels of a firm?

Correct AnswerverifiedShow Answer

Which one of the following credit instruments is commonly used in international commerce?

Correct AnswerverifiedShow Answer

A just-in-time inventory system: I.when implemented properly reduces the cost of inventory to zero. II.increases the inventory turnover rate. III.is sufficient to handle immediate production needs. IV.minimizes the costs of holding inventory.

Correct AnswerverifiedShow Answer

A supplier grants your firm credit terms of 2/10, net 40.What is the effective annual rate of the discount if the firm purchases $4,800 worth of merchandise?

Correct AnswerverifiedShow Answer

The best-selling pair of roller skates The Teen Store offers sells for $79.99 a pair.The store consistently sells 5,700 pairs of these roller skates every year.The fixed costs to order more skates is $68 and the carrying costs are $1.95 per pair.What is the economic order quantity?

Correct AnswerverifiedShow Answer

A cash discount of 2/5, net 30:

Correct AnswerverifiedShow Answer

Under credit terms of 1/5, net 15, customers should:

Correct AnswerverifiedShow Answer

The optimal amount of credit equates the incremental costs of carrying the increase in accounts receivable to the incremental:

Correct AnswerverifiedShow Answer

When evaluating the creditworthiness of a customer, the term character refers to the:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A conditional sales contract:

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

The incremental investment in receivables under the accounts receivable approach is equal to:

Correct AnswerverifiedShow Answer

The basic factors to be evaluated in the credit evaluation process, the five Cs of credit, are:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
The operating cycle is the sum of the in...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified