Question 1

A large firm may hold substantial cash balances because

Accepted Answer

A) these balances are required by the bank in the form of compensating balances. 
B) the company may have accounts in many different banks. 
C) the company may have a very decentralized organization. 
D) All of these options are correct. 
A) these balances are required by the bank in the form of compensating balances. 
B) the company may have accounts in many different banks. 
C) the company may have a very decentralized organization. 
D) All of these options are correct. D

Question 2

Which of the following transaction(s)involve(s)credit?

Accepted Answer

A) COD 
B) COD and CBD 
C) CBD 
D) 2/30, net 60 and 2/10, EOM, net 60 
A) COD 
B) COD and CBD 
C) CBD 
D) 2/30, net 60 and 2/10, EOM, net 60 D

Question 3

A factor buys a firm's receivables, and then the firm's customer makes payments directly to the factor.

Accepted Answer

A) True 
 B)False  True

Question 4

If a firm grants credit with terms of 3/10, net 30, the customer

Accepted Answer

A) must pay a penalty of 3 percent when payment is made in more than 10 days after the sale. 
B) must pay a penalty for 10 percent when payment is made in more than 3 days after the sale. 
C) receives a discount of 3 percent when payment is made in less than 10 days after the sale. 
D) receives a discount of 10 percent when payment is made in less than 3 days after the sale. 
A) must pay a penalty of 3 percent when payment is made in more than 10 days after the sale. 
B) must pay a penalty for 10 percent when payment is made in more than 3 days after the sale. 
C) receives a discount of 3 percent when payment is made in less than 10 days after the sale. 
D) receives a discount of 10 percent when payment is made in less than 3 days after the sale.

Question 5

Briefly describe the most widely used commercial credit instruments.

Accepted Answer

There are several commercial c

Question 6

Which of the following statements are true?
I.New companies must be prepared to incur more bad debts than established businesses as part of the cost of building up a good-customers list.
II.Generally, repeat orders warrant easier credit terms.
III.Companies with high profit margins need to be particularly careful about extending credit to high-risk customers.

Accepted Answer

A) I only 
B) II only 
C) III only 
D) I and II only 
A) I only 
B) II only 
C) III only 
D) I and II only

Question 7

The main advantage of using a netting system to settle foreign currency payments is that it

Accepted Answer

A) drastically reduces the number of payments. 
B) increases the number of payments. 
C) reduces the number of foreign currencies. 
D) None of these options are correct. 
A) drastically reduces the number of payments. 
B) increases the number of payments. 
C) reduces the number of foreign currencies. 
D) None of these options are correct.

Question 8

Accounts receivable include

Accepted Answer

A) trade credit. 
B) consumer credit. 
C) inventories. 
D) trade credit and consumer credit. 
A) trade credit. 
B) consumer credit. 
C) inventories. 
D) trade credit and consumer credit.

Question 9

A commercial draft can be a

Accepted Answer

A) sight draft. 
B) time draft. 
C) overdraft. 
D) sight draft and time draft. 
A) sight draft. 
B) time draft. 
C) overdraft. 
D) sight draft and time draft.

Question 10

Briefly explain different terms of sale used in practice.

Accepted Answer

Sale terms can be cash before delivery (

Question 11

The High-Rise Building Company uses 400,000 tons of stone per year. The carrying costs are $100/ton. The cost per order is $500. Calculate the total costs of optimal inventory.

Accepted Answer

A) $200,000 
B) $150,000 
C) $100,000 
D) $50,000 
A) $200,000 
B) $150,000 
C) $100,000 
D) $50,000

Question 12

What are eurodollars (international dollars)?

Accepted Answer

Eurodollars are dollar-denomin

Question 13

The economic order quantity (EOQ)is calculated using

Accepted Answer

A) Q =   . 
B) Q =   . 
C) Q =   . 
D) None of these options are correct. 
A) Q =   . 
B) Q =   . 
C) Q =   . 
D) None of these options are correct.

Question 14

When credit is offered with only the invoice as a formal instrument of credit, the credit procedure is called an

Accepted Answer

A) invoice account. 
B) open account. 
C) unsecured account. 
D) unsecured note. 
A) invoice account. 
B) open account. 
C) unsecured account. 
D) unsecured note.

Question 15

Discuss the general principles that should be used for credit decisions.

Accepted Answer

In general, there are three principles o

Question 16

Which of the following statements regarding "bankers' acceptances" is true?
I.Bankers' acceptances are used in overseas trading.
II.Bankers' acceptances are bought and sold on a discount basis.
III.Bankers' acceptances are guaranteed by the bank.

Accepted Answer

A) I only 
B) II only 
C) III only 
D) I, II, and III 
A) I only 
B) II only 
C) III only 
D) I, II, and III

Question 17

The default rate of Don's new customers has been running at 20 percent. The average sale for each new customer amounts to $500, generating a present value of profit of $200 and a 30 percent chance of a second order next year. The default rate on second orders is only 5 percent. If the interest rate is 6 percent, what is the expected profit from each new customer?

Accepted Answer

A) $152.50 
B) $149.53 
C) $275 
D) $139.62 
A) $152.50 
B) $149.53 
C) $275 
D) $139.62

Question 18

Suppose that a firm sells goods on terms of 2/30, net 60. Those customers who do not take the cash discount are effectively borrowing money at approximately 2 percent per year.

Accepted Answer

A) True 
 B)False

Question 19

The following are money market instruments except

Accepted Answer

A) T-bills. 
B) federal agency discount notes. 
C) commercial paper. 
D) preferred stocks. 
A) T-bills. 
B) federal agency discount notes. 
C) commercial paper. 
D) preferred stocks.

Question 20

What are the major objectives of credit management?

Accepted Answer

The major objectives of credit managemen

Exam 30: Working Capital Management

A large firm may hold substantial cash balances because

Which of the following transaction(s)involve(s)credit?

A factor buys a firm's receivables, and then the firm's customer makes payments directly to the factor.

If a firm grants credit with terms of 3/10, net 30, the customer

Briefly describe the most widely used commercial credit instruments.

The main advantage of using a netting system to settle foreign currency payments is that it

Accounts receivable include

A commercial draft can be a

Briefly explain different terms of sale used in practice.

The High-Rise Building Company uses 400,000 tons of stone per year. The carrying costs are $100/ton. The cost per order is $500. Calculate the total costs of optimal inventory.

What are eurodollars (international dollars)?

The economic order quantity (EOQ)is calculated using

When credit is offered with only the invoice as a formal instrument of credit, the credit procedure is called an

Discuss the general principles that should be used for credit decisions.

Which of the following statements regarding "bankers' acceptances" is true? I.Bankers' acceptances are used in overseas trading. II.Bankers' acceptances are bought and sold on a discount basis. III.Bankers' acceptances are guaranteed by the bank.

Suppose that a firm sells goods on terms of 2/30, net 60. Those customers who do not take the cash discount are effectively borrowing money at approximately 2 percent per year.

The following are money market instruments except

What are the major objectives of credit management?

Introduction to Corporate Finance

How to Calculate Present Values

Valuing Bonds

The Value of Common Stocks

Net Present Value and Other Investment Criteria

Making Investment Decisions With the Net Present Value Rule

Introduction to Risk and Return

Portfolio Theory and the Capital Asset Pricing Model

Risk and the Cost of Capital

Project Analysis

How to Ensure That Projects Truly Have Positive Npvs

Agency Problems and Investment

Efficient Markets and Behavioral Finance

An Overview of Corporate Financing

How Corporations Issue Securities

Payout Policy

Does Debt Policy Matter

How Much Should a Corporation Borrow

Financing and Valuation

Understanding Options

Valuing Options

Real Options

Credit Risk and the Value of Corporate Debt

The Many Different Kinds of Debt

Leasing

Managing Risk

Managing International Risks

Financial Analysis

Financial Planning

Mergers

Corporate Restructuring

Governance and Corporate Control Around the World

Filters