Exam 22: Credit Management and Collection

Which of the following elements of credit terms might discourage purchasers from paying with a discount?

Which of the following financial ratios has the highest weight in Altman's Z score estimation?

The "five C's of credit" represent a framework for analyzing credit risk.

Extending trade credit can increase the probability of repeat orders.

Calculate the implied cost of trade credit for firms that do not take advantage of cash discounts, based on terms of sale of: 5/15, net 60.By how much does this implied cost change if the discount is increased by 1% and the net payment period is increased to 90 days?

Which of the following is not likely to be a characteristic of a numerical credit scoring system?

Xian Corporation predicts that if a customer pays on the first sale, it is assured that it is a reliable customer.As such, it expects that customer to generate a net profit of $700 per year for 10 years.Ajax calculates present value with a 9% rate of return.There is a 70% probability that Ajax will secure a reliable customer.However, if the customer defaults, Ajax will have to incur a loss of $800.Determine the expected benefit if credit is granted.

Which of the following typically justifies the offering of season dating?

Which of the following strategies would continue to be effective if a cash-strapped firm determines that the effective interest rate charged on trade credit is lower than the bank's interest rate?

When sellers deliberately postdate an invoice by several months, their terms of sale include:

Consider a firm with the following financial ratios: EBIT/total assets = .12 Sales/total assets = 1.4 Market equity/book debt = .9 Retained earnings/total assets = .4 Working capital/total assets = .12 What is the firm Z scorer?

Progress payments allow the customers to choose the payment schedule.

Balsam Corporation is concerned about their current bad debt ratio of 9%.The CFO believes imposing a more stringent credit policy may reduce sales by 8% and reduce the bad debt ratio to 6%.If the cost of goods sold is 85% of the selling price, determine if the new policy should be undertaken.

Determine the annual effective rate of a customer that does not take advantage of credit terms of 2/10, n/30.

Which of the following changes to the terms of credit would make the effective annual rate increase?

Smith Corp.produces a product that generates repeat orders on an annual basis.Their product has a current price of $2,500 and a current cost of $2,100.They use a 15% opportunity cost of capital.Due to the product's high cost, there is a 17% chance that each new customer will default on payment.What is the expected profit and break-even probability from granting credit under these conditions?

The Five C's of Credit refer to the:

A customer who ignores the cash discount but pays within the payment period need not add interest to the invoice.

Candy Corporation sells a product for $25 with costs of $20 per unit.Candy uses a 12% rate of return for all its calculations.The CFO estimates that there is a 25% probability of a prospective new customers seeking credit will go bankrupt within the next 6 months.Customer wishes to place an order for 2,500 units of the product

Which of the following financial ratios is not used to develop Altman's Z score from multiple discriminate analysis?