Question 1

Winters' just purchased $42,911 of goods from its supplier with credit terms of 1/5, net 25. What is the discounted price?

Accepted Answer

A)  $40,765 
B)  $41,209 
C)  $42,482 
D)  $42,911 
E)  $43,300 
A)  $40,765 
B)  $41,209 
C)  $42,482 
D)  $42,911 
E)  $43,300 C

Question 2

The terms of sale generally include all of the following except the:

Accepted Answer

A)  credit period. 
B)  cash discount. 
C)  type of credit instrument. 
D)  discount period. 
E)  customer's credit capacity. 
A)  credit period. 
B)  cash discount. 
C)  type of credit instrument. 
D)  discount period. 
E)  customer's credit capacity. E

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 cost of the items sold. 
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)  increasing receivables guarantees increasing profits. 
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. 
A)  a firm's risk of offering credit to a new customer is limited to the cost of the items sold. 
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)  increasing receivables guarantees increasing profits. 
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. A

Question 4

Which of the following characteristics are most associated with a firm that adopts a liberal credit policy?

Accepted Answer

A)  Mostly one-time customers and excess capacity 
B)  Low carrying costs and full production 
C)  Low carrying costs and high variable costs 
D)  Low variable costs and predominately repeat customers 
E)  Excess capacity and high variable costs 
A)  Mostly one-time customers and excess capacity 
B)  Low carrying costs and full production 
C)  Low carrying costs and high variable costs 
D)  Low variable costs and predominately repeat customers 
E)  Excess capacity and high variable costs

Question 5

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

Question 6

Currently, Glasgow Importers sells 855 units a month at a price of $39 a unit. By switching to a net 30 credit policy, sales should increase to 950 units while the price remains constant. The monthly interest rate is .61 percent and the variable cost per unit is $8. What is the net present value of the proposed credit policy switch?

Accepted Answer

A)  $513,360 
B)  $516,892 
C)  $490,200 
D)  $537,520 
E)  $448,682 
A)  $513,360 
B)  $516,892 
C)  $490,200 
D)  $537,520 
E)  $448,682

Question 7

The EOQ model is designed to determine how much:

Accepted Answer

A)  total inventory a firm needs during any one year. 
B)  total inventory costs will be for any one given year. 
C)  inventory should be purchased at one time. 
D)  inventory will be sold per day. 
E)  a firm loses in sales per day when an inventory item is depleted. 
A)  total inventory a firm needs during any one year. 
B)  total inventory costs will be for any one given year. 
C)  inventory should be purchased at one time. 
D)  inventory will be sold per day. 
E)  a firm loses in sales per day when an inventory item is depleted.

Question 8

Inventory needs under a derived-demand inventory system are:

Accepted Answer

A)  primarily dependent upon the competitive demands placed on a firm's suppliers. 
B)  based on the anticipated demand for the finished product. 
C)  based on minimizing the cost of restocking inventory. 
D)  held constant over time. 
E)  determined by a Kanban system. 
A)  primarily dependent upon the competitive demands placed on a firm's suppliers. 
B)  based on the anticipated demand for the finished product. 
C)  based on minimizing the cost of restocking inventory. 
D)  held constant over time. 
E)  determined by a Kanban system.

Question 9

The Dilana Corporation is considering a change in its cash-only policy. The new terms would be net one period. The required return is 1.5 percent per period. The firm has current sales of 3,500 units per month at a price of $71 per unit. The new policy is expected to increase sales to 3,550 units at a price of $71 per unit. The cost per unit is constant at $38. What is the incremental cash inflow of the new policy?

Accepted Answer

A)  $1,880 
B)  $1,420 
C)  $1,500 
D)  $1,995 
E)  $1,650 
A)  $1,880 
B)  $1,420 
C)  $1,500 
D)  $1,995 
E)  $1,650

Question 10

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

Accepted Answer

A)  type of goods the customer wishes to obtain. 
B)  customer's financial reserves. 
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. 
A)  type of goods the customer wishes to obtain. 
B)  customer's financial reserves. 
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.

Question 11

Allison has developed a set of procedures for determining the amount of each raw material she needs to have in inventory if she is to keep the assembly lines operating efficiently. These procedures are commonly referred to by which one of the following terms?

Accepted Answer

A)  First-in, first-out method 
B)  The Baumol model 
C)  Net working capital planning 
D)  Economic order procedures 
E)  Materials requirements planning 
A)  First-in, first-out method 
B)  The Baumol model 
C)  Net working capital planning 
D)  Economic order procedures 
E)  Materials requirements planning

Question 12

Assume you are viewing a graph that 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 graph 
A)  Opportunity cost curve 
B)  Credit extension curve 
C)  Credit cost curve 
D)  Terms of sale graph 
E)  Optimal sales graph

Question 13

Quest is considering a change in its cash-only sales policy. The new terms of sale would be net one month. The required return is .98 percent per month. Currently, the firm sells 420 units per month at $736 per unit. Under the new policy, the firm expects sales of 475 units also at $736 per unit. The variable cost per unit is $426. What is the NPV of switching?

Accepted Answer

A)  $1,228,750 
B)  $1,407,246 
C)  $1,335,021 
D)  $1,238,250 
E)  $1,056,784 
A)  $1,228,750 
B)  $1,407,246 
C)  $1,335,021 
D)  $1,238,250 
E)  $1,056,784

Question 14

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

Accepted Answer

A)  Plywood held in inventory by a home builder 
B)  A wheel barrow held in inventory by a garden center 
C)  A partially assembled interior for a new vehicle 
D)  A set of tires owned by an automobile manufacturer 
E)  A toy owned by a retail toy store 
A)  Plywood held in inventory by a home builder 
B)  A wheel barrow held in inventory by a garden center 
C)  A partially assembled interior for a new vehicle 
D)  A set of tires owned by an automobile manufacturer 
E)  A toy owned by a retail toy store

Question 15

Assume an average selling price of $547 per unit, a variable cost per unit of $339, a monthly interest rate of 1.1 percent, and a default rate of 3.1 percent. What is the NPV of extending credit for 30 days to all who are expected to become repeat customers?

Accepted Answer

A)  $17,984 
B)  $19,787 
C)  $12,304 
D)  $18,662 
E)  $13,609 
A)  $17,984 
B)  $19,787 
C)  $12,304 
D)  $18,662 
E)  $13,609

Question 16

A new customer has placed an order for a turbine engine that has a variable cost of $1.12 million per unit and a credit sales price of $1.64 million. Credit is extended for one period. Based on historical experience, payment for about 1 out of every 178 such orders is never collected. The required return is 2.1 percent per period. What is the NPV per unit if this is a one-time order?

Accepted Answer

A)  $516,407 
B)  $421,819 
C)  $477,244 
D)  $534,290 
E)  $351,056 
A)  $516,407 
B)  $421,819 
C)  $477,244 
D)  $534,290 
E)  $351,056

Question 17

New Products currently sells a product with a variable cost per unit of $23 and a unit selling price of $49. At the present time, the firm only sells on a cash basis with monthly sales of 733 units. The monthly interest rate is .48 percent. What is the value of Q' at the switch break-even point if the firm adopted a net 30 credit policy? Assume the selling price per unit and the variable costs per unit remain constant.

Accepted Answer

A)  739.66 units 
B)  736.34 units 
C)  728.47 units 
D)  740.29 units 
E)  743.18 units 
A)  739.66 units 
B)  736.34 units 
C)  728.47 units 
D)  740.29 units 
E)  743.18 units

Question 18

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

Accepted Answer

A)  Storage costs 
B)  Insurance cost 
C)  Loss of customer goodwill 
D)  Theft cost 
E)  Opportunity cost of capital used for inventory purchases 
A)  Storage costs 
B)  Insurance cost 
C)  Loss of customer goodwill 
D)  Theft cost 
E)  Opportunity cost of capital used for inventory purchases

Question 19

Each year, CTM sells 450 units of a product at a price of $639 each. The variable cost per unit is $421, the carrying cost per unit is $11.78, and the fixed order cost is $56. What is the economic order quantity?

Accepted Answer

A)  65 units 
B)  58 units 
C)  72 units 
D)  53 units 
E)  84 units 
A)  65 units 
B)  58 units 
C)  72 units 
D)  53 units 
E)  84 units

Question 20

Assume a sales price of $119 per unit, a $76 per unit variable cost, an average default rate of 3 percent, and a monthly interest rate of 1.25 percent. What is the net present value of a new repeat customer who never defaults on his or her payment?

Accepted Answer

A)  $5,733 
B)  $3,364 
C)  $2,617 
D)  $8,817 
E)  $9,520 
A)  $5,733 
B)  $3,364 
C)  $2,617 
D)  $8,817 
E)  $9,520

Exam 20: Credit and Inventory Management

Winters' just purchased $42,911 of goods from its supplier with credit terms of 1/5, net 25. What is the discounted price?

The terms of sale generally include all of the following except the:

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

Which of the following characteristics are most associated with a firm that adopts a liberal credit policy?

The EOQ model is designed to determine how much:

Inventory needs under a derived-demand inventory system are:

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

Allison has developed a set of procedures for determining the amount of each raw material she needs to have in inventory if she is to keep the assembly lines operating efficiently. These procedures are commonly referred to by which one of the following terms?

Assume you are viewing a graph that 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?

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

Assume an average selling price of $547 per unit, a variable cost per unit of $339, a monthly interest rate of 1.1 percent, and a default rate of 3.1 percent. What is the NPV of extending credit for 30 days to all who are expected to become repeat customers?

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

Each year, CTM sells 450 units of a product at a price of $639 each. The variable cost per unit is $421, the carrying cost per unit is $11.78, and the fixed order cost is $56. What is the economic order quantity?

Assume a sales price of $119 per unit, a $76 per unit variable cost, an average default rate of 3 percent, and a monthly interest rate of 1.25 percent. What is the net present value of a new repeat customer who never defaults on his or her payment?

Introduction to Corporate Finance

Financial Statements, Taxes, and Cash Flow

Working with Financial Statements

Long-Term Financial Planning and Growth

Introduction to Valuation: The Time Value of Money

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Project Analysis and Evaluation

Some Lessons from Capital Market History

Return, Risk, and the Security Market Line

Cost of Capital

Raising Capital

Financial Leverage and Capital Structure Policy

Dividends and Payout Policy

Short Term Finance and Planning

Cash and Liquidity Management

International Corporate Finance

Behavioral Finance: Implications for Financial Management

Enterprise Risk Management

Options and Corporate Finance

Option Valuation

Mergers and Acquisitions

Leasing

Filters