Question 1

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. 
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.

Question 2

The EOQ model is designed to minimize:

Accepted Answer

A)  production costs. 
B)  inventory obsolescence. 
C)  the carrying costs of inventory. 
D)  the costs of replenishing inventory. 
E)  the total costs of holding inventory. 
A)  production costs. 
B)  inventory obsolescence. 
C)  the carrying costs of inventory. 
D)  the costs of replenishing inventory. 
E)  the total costs of holding inventory.

Question 3

Which two of the following are the key elements in determining the break-even default rate on a credit policy?

Accepted Answer

A)  Credit price and cash price assuming a zero default rate 
B)  Required rate of return and percentage discount for cash customers 
C)  Variable cost per unit and required rate of return 
D)  Sales price and variable cost per unit for credit customers 
E)  Credit price and discount rate for cash customers 
A)  Credit price and cash price assuming a zero default rate 
B)  Required rate of return and percentage discount for cash customers 
C)  Variable cost per unit and required rate of return 
D)  Sales price and variable cost per unit for credit customers 
E)  Credit price and discount rate for cash customers

Question 4

Geoff Industries offers its credit customers a two percent discount if they pay within ten days. This discount is referred to as a ________ discount.

Accepted Answer

A)  cash 
B)  purchase 
C)  collection 
D)  market 
E)  receivables 
A)  cash 
B)  purchase 
C)  collection 
D)  market 
E)  receivables

Question 5

Which one of the following statements is correct?

Accepted Answer

A)  If the majority of a firm's new customers become repeat customers, then there is a strong argument against extending credit even if the default rate is low. 
B)  A customer's past payment history reveals little information in relation to his or her future tendency to pay. 
C)  A suggested policy for offering credit to new customers is to limit the amount of their initial credit purchase. 
D)  The risk of issuing credit is the same for a new customer as it is for an existing customer. 
E)  The recommended policy for new customers is to extend an offer of a high credit limit as an enticement to get their business. 
A)  If the majority of a firm's new customers become repeat customers, then there is a strong argument against extending credit even if the default rate is low. 
B)  A customer's past payment history reveals little information in relation to his or her future tendency to pay. 
C)  A suggested policy for offering credit to new customers is to limit the amount of their initial credit purchase. 
D)  The risk of issuing credit is the same for a new customer as it is for an existing customer. 
E)  The recommended policy for new customers is to extend an offer of a high credit limit as an enticement to get their business.

Question 6

Under its current cash sales only policy, JJ's sells 186 units a month at a price of $330 each. The variable cost per unit is $155 and the monthly interest rate is 1.3 percent. The firm believes it can sell an additional 25 units per month if it offers a net 30 credit policy. What is the present value of the switch using the one-shot approach?

Accepted Answer

A)  $312,806 
B)  $291,543 
C)  $271,283 
D)  $288,946 
E)  $311,118 
A)  $312,806 
B)  $291,543 
C)  $271,283 
D)  $288,946 
E)  $311,118

Question 7

You need to charge your purchases and know that you will not be able to pay within the discount period. Which one of these credit terms is best-suited to you?

Accepted Answer

A)  1/5, net 15 
B)  2/5, net 30 
C)  2/5, net 20 
D)  1/10, net 45 
E)  2/10, net 30 
A)  1/5, net 15 
B)  2/5, net 30 
C)  2/5, net 20 
D)  1/10, net 45 
E)  2/10, net 30

Question 8

Today, October 12, Nadine's Fashions purchased merchandise from a supplier. The credit terms are 2/10, net 30. By what day does Nadine's have to make the payment to receive the discount? Assume a 30-day month.

Accepted Answer

A)  October 12 
B)  October 14 
C)  October 22 
D)  October 27 
E)  November 12 
A)  October 12 
B)  October 14 
C)  October 22 
D)  October 27 
E)  November 12

Question 9

You are an accounting intern and today you are compiling a spreadsheet with column headings of: Invoice number; Customer number;  90 days. You will list every unpaid invoice with the amount owed entered into the appropriate column based on the number of days between the sale date and today. Once you have completed that, you will sort the report by customer number and total the amounts listed in each column. What is this report called?

Accepted Answer

A)  Credit report 
B)  Aging schedule 
C)  Risk assessment report 
D)  Turnover delineation 
E)  Receivables consolidation report 
A)  Credit report 
B)  Aging schedule 
C)  Risk assessment report 
D)  Turnover delineation 
E)  Receivables consolidation report

Question 10

Which one of the following statements is correct?

Accepted Answer

A)  Firms may opt to refuse additional credit to a delinquent customer. 
B)  Seasonal sales have little, if any, impact on aging schedule percentages. 
C)  Normally, firms call their delinquent customers prior to sending them a past due letter. 
D)  If a firm wishes to sell a delinquent receivable, it must do so prior to the customer filing for bankruptcy. 
E)  Expected decreases in the average collection period are a cause of concern. 
A)  Firms may opt to refuse additional credit to a delinquent customer. 
B)  Seasonal sales have little, if any, impact on aging schedule percentages. 
C)  Normally, firms call their delinquent customers prior to sending them a past due letter. 
D)  If a firm wishes to sell a delinquent receivable, it must do so prior to the customer filing for bankruptcy. 
E)  Expected decreases in the average collection period are a cause of concern.

Question 11

Any written proof that a customer owes you money for goods or services provided is referred to as a(n):

Accepted Answer

A)  account document. 
B)  sales draft. 
C)  credit instrument. 
D)  commercial paper. 
E)  letter of debt. 
A)  account document. 
B)  sales draft. 
C)  credit instrument. 
D)  commercial paper. 
E)  letter of debt.

Question 12

If you extend credit for a one-time sale to a new customer, you risk an amount equal to the:

Accepted Answer

A)  sales price of the item sold. 
B)  variable cost of the item sold. 
C)  fixed cost of the item sold. 
D)  profit margin on the item sold. 
E)  fixed and variable costs of the item sold. 
A)  sales price of the item sold. 
B)  variable cost of the item sold. 
C)  fixed cost of the item sold. 
D)  profit margin on the item sold. 
E)  fixed and variable costs of the item sold.

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

The EOQ model is designed to minimize:

Which two of the following are the key elements in determining the break-even default rate on a credit policy?

Geoff Industries offers its credit customers a two percent discount if they pay within ten days. This discount is referred to as a ________ discount.

Which one of the following statements is correct?

You need to charge your purchases and know that you will not be able to pay within the discount period. Which one of these credit terms is best-suited to you?

Today, October 12, Nadine's Fashions purchased merchandise from a supplier. The credit terms are 2/10, net 30. By what day does Nadine's have to make the payment to receive the discount? Assume a 30-day month.

Which one of the following statements is correct?

Any written proof that a customer owes you money for goods or services provided is referred to as a(n):

If you extend credit for a one-time sale to a new customer, you risk an amount equal to the:

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

Exam 20: Credit and Inventory Management

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

The EOQ model is designed to minimize:

Which two of the following are the key elements in determining the break-even default rate on a credit policy?

Geoff Industries offers its credit customers a two percent discount if they pay within ten days. This discount is referred to as a ________ discount.

Which one of the following statements is correct?

You need to charge your purchases and know that you will not be able to pay within the discount period. Which one of these credit terms is best-suited to you?

Today, October 12, Nadine's Fashions purchased merchandise from a supplier. The credit terms are 2/10, net 30. By what day does Nadine's have to make the payment to receive the discount? Assume a 30-day month.

Which one of the following statements is correct?

Any written proof that a customer owes you money for goods or services provided is referred to as a(n):

If you extend credit for a one-time sale to a new customer, you risk an amount equal to the:

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