Question 1

Capacity, which is one of the traditional "five Cs" of credit analysis, refers to the ____.

Accepted Answer

A)  general economic climate and its effect on the applicant's ability to pay 
B)  willingness of the applicant to meet its financial obligations 
C)  financial strength of the applicant (i.e., net worth) 
D)  ability of an applicant to meet its financial obligations 
A)  general economic climate and its effect on the applicant's ability to pay 
B)  willingness of the applicant to meet its financial obligations 
C)  financial strength of the applicant (i.e., net worth) 
D)  ability of an applicant to meet its financial obligations

Question 2

____ are the criteria the firm uses to screen credit applicants to determine which of its customers should be offered credit and how much.

Accepted Answer

A)  Credit terms 
B)  Credit standards 
C)  Seasonal datings 
D)  Credit extension policies 
A)  Credit terms 
B)  Credit standards 
C)  Seasonal datings 
D)  Credit extension policies

Question 3

The average collection period measures the number of days ____.

Accepted Answer

A)  between when a typical credit sale is made and when the firm receives the payment 
B)  it takes a typical check to "clear" through the banking system 
C)  beyond the end of the credit period before a typical customer payment is received 
D)  before a typical account becomes delinquent 
A)  between when a typical credit sale is made and when the firm receives the payment 
B)  it takes a typical check to "clear" through the banking system 
C)  beyond the end of the credit period before a typical customer payment is received 
D)  before a typical account becomes delinquent

Question 4

Potential losses can occur in the credit evaluation process when ____.

Accepted Answer

A)  credit is denied to a creditworthy customer 
B)  the credit decision is delayed too long 
C)  credit is denied to a customer who is not credit worthy 
D)  credit is denied to a creditworthy customer and the credit decision is delayed too long 
A)  credit is denied to a creditworthy customer 
B)  the credit decision is delayed too long 
C)  credit is denied to a customer who is not credit worthy 
D)  credit is denied to a creditworthy customer and the credit decision is delayed too long

Question 5

All except which of the following are possible solutions to a large bad-debt loss ratio?

Accepted Answer

A)  Loosening credit 
B)  Offering cash discounts for prompt payment 
C)  Seasonal datings 
D)  Determining creditworthiness of customers 
A)  Loosening credit 
B)  Offering cash discounts for prompt payment 
C)  Seasonal datings 
D)  Determining creditworthiness of customers

Question 6

In general, the ____ a firm's production cycle, the ____ its work-in-process inventory.

Accepted Answer

A)  longer; larger 
B)  longer; smaller 
C)  shorter; larger 
D)  None of these; length of cycle is not related to amount of work-in-process. 
A)  longer; larger 
B)  longer; smaller 
C)  shorter; larger 
D)  None of these; length of cycle is not related to amount of work-in-process.

Question 7

The ____ is the inventory level at which an order should be placed for replenishment of an item.

Accepted Answer

A)  nonzero inventory level 
B)  safety stock 
C)  reorder point 
D)  inventory quantity 
A)  nonzero inventory level 
B)  safety stock 
C)  reorder point 
D)  inventory quantity

Question 8

Whirlwind Company sells to retail appliance stores on credit terms of net 30. Annual credit sales are $182,500,000 spread evenly throughout the year, and its accounts average 20 days overdue. The firm's variable cost ratio is 0.70. Determine Whirlwind's average investment in receivables. (Assume 365 days per year in all calculations.)

Accepted Answer

A)  $17,500,000 
B)  $25,000,000 
C)  $15,000,000 
D)  Cannot be determined from the information provided 
A)  $17,500,000 
B)  $25,000,000 
C)  $15,000,000 
D)  Cannot be determined from the information provided

Question 9

Increasing collection expenditures is likely to result in ____.

Accepted Answer

A)  a shorter average collection period 
B)  reduced bad-debt losses 
C)  higher accounts receivable balances 
D)  a shorter average collection period and reduced bad-debt losses 
A)  a shorter average collection period 
B)  reduced bad-debt losses 
C)  higher accounts receivable balances 
D)  a shorter average collection period and reduced bad-debt losses

Question 10

When an order is placed for an item that is manufactured internally within a company, ordering costs consist primarily of ____.

Accepted Answer

A)  storage and handling costs 
B)  deterioration costs 
C)  production setup costs 
D)  carrying costs 
A)  storage and handling costs 
B)  deterioration costs 
C)  production setup costs 
D)  carrying costs

Question 11

Mace Auto Parts Company sells to retail auto supply stores on credit terms of "net 60." Annual credit sales are $300 million (spread evenly throughout the year) and its accounts average 28 days overdue. The firm's variable cost ratio is 0.75 (i.e., variable costs are 75% of sales). When converting from annual to daily data or vice versa, assume there are 365 days per year. Determine Mace's average investment in receivables.

Accepted Answer

A)  $821,918 
B)  $3,409,091 
C)  $72,328,767 
D)  $82,192 
A)  $821,918 
B)  $3,409,091 
C)  $72,328,767 
D)  $82,192

Question 12

When a company measures its marginal costs and marginal returns, it is developing a(n) ____.

Accepted Answer

A)  target capital structure 
B)  optimal credit extension policy 
C)  required rate of return 
D)  financing decision 
A)  target capital structure 
B)  optimal credit extension policy 
C)  required rate of return 
D)  financing decision

Question 13

The effect of a change in a firm's credit terms from "net 30" to "2/10, net 30" on its own balance sheet is likely to be ____.

Accepted Answer

A)  decreased accounts receivable 
B)  increased accounts receivable 
C)  decreased accounts payable 
D)  increased accounts payable 
A)  decreased accounts receivable 
B)  increased accounts receivable 
C)  decreased accounts payable 
D)  increased accounts payable

Question 14

Mace Auto Parts Company sells to retail auto supply stores on credit terms of "net 60." Annual credit sales are $300 million (spread evenly throughout the year) and its accounts average 28 days overdue. The firm's variable cost ratio is 0.75 (i.e., variable costs are 75% of sales). When converting from annual to daily data or vice versa, assume there are 365 days per year. Suppose that Mace's sales are expected to increase by 20% next year and, through more effective collection methods, the firm can reduce its average collection period by 20 days. Determine the firm's average investment in receivables for next year under these conditions.

Accepted Answer

A)  $67,068,493 
B)  $56,666,667 
C)  $5,294,118 
D)  $98,630 
A)  $67,068,493 
B)  $56,666,667 
C)  $5,294,118 
D)  $98,630

Question 15

Covers, Inc. (CI) sells its stainless steel products on terms of "2/10, net 40." CI is considering granting credit to retailers with total assets as low as $500,000. Currently the lowest asset limit is $750,000. CI believes sales will increase $7 million from the new credit group but the average collection period for this new group will be 60 days versus the current average collection period of 35 days. If management estimates that 20% of the new customers will take the cash discount but 4% of the new business will be written off as a bad-debt loss, should CI lower its credit standards? Why or why not? Assume CI's variable cost ratio is 0.7 and its required pretax rate of return on receivables investment is 15%.

Accepted Answer

A)  Yes; pretax profits increase $1,619,397 
B)  Yes; pretax profits increase $1,703,397 
C)  Yes; pretax profits increase $1,755,178 
D)  No; Pretax profits will decrease 
A)  Yes; pretax profits increase $1,619,397 
B)  Yes; pretax profits increase $1,703,397 
C)  Yes; pretax profits increase $1,755,178 
D)  No; Pretax profits will decrease

Question 16

The objective of offering seasonal datings to customers is to ____.

Accepted Answer

A)  encourage customers to place their orders prior to the peak selling period 
B)  speed up the collection of accounts receivable 
C)  increase the firm's inventory storage costs 
D)  reduce the number of bad checks received from customers 
A)  encourage customers to place their orders prior to the peak selling period 
B)  speed up the collection of accounts receivable 
C)  increase the firm's inventory storage costs 
D)  reduce the number of bad checks received from customers

Question 17

Haulsee Inc. builds 800,000 golf carts a year and purchases the electronic motors for these carts for $370 each. Ordering costs are $540, and Haulsee's inventory carrying costs average 14% of the inventory value. What is the total inventory costs?

Accepted Answer

A)  $565,445 
B)  $224,331 
C)  $211,554 
D)  $21,155,120 
A)  $565,445 
B)  $224,331 
C)  $211,554 
D)  $21,155,120

Capacity, which is one of the traditional "five Cs" of credit analysis, refers to the ____.

____ are the criteria the firm uses to screen credit applicants to determine which of its customers should be offered credit and how much.

The average collection period measures the number of days ____.

Potential losses can occur in the credit evaluation process when ____.

All except which of the following are possible solutions to a large bad-debt loss ratio?

In general, the a firm's production cycle, the its work-in-process inventory.

The ____ is the inventory level at which an order should be placed for replenishment of an item.

Increasing collection expenditures is likely to result in ____.

When an order is placed for an item that is manufactured internally within a company, ordering costs consist primarily of ____.

When a company measures its marginal costs and marginal returns, it is developing a(n) ____.

The effect of a change in a firm's credit terms from "net 30" to "2/10, net 30" on its own balance sheet is likely to be ____.

The objective of offering seasonal datings to customers is to ____.

Haulsee Inc. builds 800,000 golf carts a year and purchases the electronic motors for these carts for $370 each. Ordering costs are $540, and Haulsee's inventory carrying costs average 14% of the inventory value. What is the total inventory costs?

The Role and Objective of Financial Management

The Domestic and International Financial Marketplace

Evaluation of Financial Performance

Financial Planning and Forecasting

The Time Value of Money

Continuous Compounding and Discounting

Fixed Income Securities: Characteristics and Valuation

Common Stock: Characteristics, Valuation, and Issuance

Analysis of Risk and Return

Capital Budgeting and Cash Flow Analysis

Mutually Exclusive Investments Having Unequal Lives

Capital Budgeting: Decision Criteria and Real Option Considerations

Capital Budgeting and Risk

The Cost of Capital

Capital Structure Concepts

Breakeven Analysis

Capital Structure Management in Practice

Dividend Policy

Working Capital Policy and Short-Term Financing

The Management of Cash and Marketable Securities

Lease and Intermediate Term Financing

Financing With Derivatives

Bond Refunding Analysis

Risk Management

International Financial Management

Corporate Restructuring

Filters

Exam 21: The Management of Accounts Receivable and Inventories

Capacity, which is one of the traditional "five Cs" of credit analysis, refers to the ____.

____ are the criteria the firm uses to screen credit applicants to determine which of its customers should be offered credit and how much.

The average collection period measures the number of days ____.

Potential losses can occur in the credit evaluation process when ____.

All except which of the following are possible solutions to a large bad-debt loss ratio?

In general, the ____ a firm's production cycle, the ____ its work-in-process inventory.

The ____ is the inventory level at which an order should be placed for replenishment of an item.

Increasing collection expenditures is likely to result in ____.

When an order is placed for an item that is manufactured internally within a company, ordering costs consist primarily of ____.

When a company measures its marginal costs and marginal returns, it is developing a(n) ____.

The effect of a change in a firm's credit terms from "net 30" to "2/10, net 30" on its own balance sheet is likely to be ____.

The objective of offering seasonal datings to customers is to ____.

Haulsee Inc. builds 800,000 golf carts a year and purchases the electronic motors for these carts for $370 each. Ordering costs are $540, and Haulsee's inventory carrying costs average 14% of the inventory value. What is the total inventory costs?

The Role and Objective of Financial Management

The Domestic and International Financial Marketplace

Evaluation of Financial Performance

Financial Planning and Forecasting

The Time Value of Money

Continuous Compounding and Discounting

Fixed Income Securities: Characteristics and Valuation

Common Stock: Characteristics, Valuation, and Issuance

Analysis of Risk and Return

Capital Budgeting and Cash Flow Analysis

Mutually Exclusive Investments Having Unequal Lives

Capital Budgeting: Decision Criteria and Real Option Considerations

Capital Budgeting and Risk

The Cost of Capital

Capital Structure Concepts

Breakeven Analysis

Capital Structure Management in Practice

Dividend Policy

Working Capital Policy and Short-Term Financing

The Management of Cash and Marketable Securities

Lease and Intermediate Term Financing

Financing With Derivatives

Bond Refunding Analysis

Risk Management

International Financial Management

Corporate Restructuring

Filters

In general, the a firm's production cycle, the its work-in-process inventory.