Question 1

Cash discounts are mostly used to get new customers in the door since existing customers almost always use the delayed payment terms.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is not correct?

Accepted Answer

A)  A more aggressive collection policy will reduce bad debt expenses, but may also decrease sales. 
B)  Collection policy usually has little impact on sales since collecting past-due accounts occurs only after the customer has already purchased. 
C)  Typically a firm will turn over an account to a collection agency only after it has tried several times on its own to collect the account. 
D)  A lax collection policy will frequently lead to an increase in accounts receivable. 
E)  Collection policy is how a firm goes about collecting past-due accounts. 
A)  A more aggressive collection policy will reduce bad debt expenses, but may also decrease sales. 
B)  Collection policy usually has little impact on sales since collecting past-due accounts occurs only after the customer has already purchased. 
C)  Typically a firm will turn over an account to a collection agency only after it has tried several times on its own to collect the account. 
D)  A lax collection policy will frequently lead to an increase in accounts receivable. 
E)  Collection policy is how a firm goes about collecting past-due accounts.

Question 3

The Somerset Bank offered Blakemore Inc.the following loan alternatives in response to its request for a $75,000,1-year loan. Altermative 1: $ \quad $ 7 percent discaunt interest, winth a 10 percent campensating balance
Alternetive 2 : $ \quad $ 8 percent simple interest, writh interest paid monthly.
What is the effective annual rate on the cheaper loan?

Accepted Answer

A)  8.00% 
B)  7.23% 
C)  7.67% 
D)  8.43% 
E)  8.30% 
A)  8.00% 
B)  7.23% 
C)  7.67% 
D)  8.43% 
E)  8.30%

Question 4

The credit period is the amount of time it takes to do a credit search on a potential customer.

Accepted Answer

A) True 
 B)False

Question 5

Campbell Computing Inc.currently has sales of $1,000,000,and its days sales outstanding is 30 days.The financial manager estimates that offering longer credit terms would (1)increase the days sales outstanding to 50 days and (2)increase sales to $1,200,000.However,bad debt losses,which were 2 percent on the old sales,would amount to 5 percent on the incremental sales only (bad debts on the old sales would stay at 2 percent).Variable costs are 80 percent of sales,and Campbell has a 15 percent receivables financing cost.What would the annual incremental pre-tax profit be if Bass extended its credit period?

Accepted Answer

A)  -$20,000 
B)  -$10,000 
C)  $0 
D)  $10,000 
E)  $20,000 
A)  -$20,000 
B)  -$10,000 
C)  $0 
D)  $10,000 
E)  $20,000

Question 6

A firm's credit policy consists of which of the following items?

Accepted Answer

A)  Credit period, cash discounts, credit standards, collection policy. 
B)  Credit period, cash discounts, receivables monitoring, collection policy. 
C)  Cash discounts, credit standards, receivables monitoring, collection policy. 
D)  Credit period, receivables monitoring, credit standards, collection policy. 
E)  Credit period, cash discounts, credit standards, receivables monitoring. 
A)  Credit period, cash discounts, credit standards, collection policy. 
B)  Credit period, cash discounts, receivables monitoring, collection policy. 
C)  Cash discounts, credit standards, receivables monitoring, collection policy. 
D)  Credit period, receivables monitoring, credit standards, collection policy. 
E)  Credit period, cash discounts, credit standards, receivables monitoring.

Question 7

Gladys Turner borrowed $12,000 from the bank using a 10.19 percent "add-on",one-year installment loan,payable in four equal quarterly payments.What is the effective annual rate of interest?

Accepted Answer

A)  9.50% 
B)  10.19% 
C)  15.99% 
D)  16.98% 
E)  20.38% 
A)  9.50% 
B)  10.19% 
C)  15.99% 
D)  16.98% 
E)  20.38%

Question 8

When deciding whether to offer a discount for cash payment,a firm must balance the profits from additional sales with the lost revenues from the discount.

Accepted Answer

A) True 
 B)False

Question 9

Harris Flooring Inc.is planning to borrow $12,000 from the bank for new sanding machines.The bank offers the choice of a 12 percent discount interest loan or a 10.19 percent add-on,one-year installment loan,payable in 4 equal quarterly payments.What is the effective rate of interest on the 12 percent discounted loan?

Accepted Answer

A)  10.7% 
B)  12.0% 
C)  12.5% 
D)  13.6% 
E)  14.1% 
A)  10.7% 
B)  12.0% 
C)  12.5% 
D)  13.6% 
E)  14.1%

Cash discounts are mostly used to get new customers in the door since existing customers almost always use the delayed payment terms.

Which of the following is not correct?

The credit period is the amount of time it takes to do a credit search on a potential customer.

A firm's credit policy consists of which of the following items?

Gladys Turner borrowed $12,000 from the bank using a 10.19 percent "add-on",one-year installment loan,payable in four equal quarterly payments.What is the effective annual rate of interest?

When deciding whether to offer a discount for cash payment,a firm must balance the profits from additional sales with the lost revenues from the discount.

An Overview of Financial Management and the Financial Environment

Financial Statements, cash Flow, and Taxes

Analysis of Financial Statements

Time Value of Money

Bonds, bond Valuation, and Interest Rates

Risk and Return

Valuation of Stocks and Corporations

Financial Options and Applications in Corporate Finance

The Cost of Capital

The Basics of Capital Budgeting: Evaluating Cash Flows

Cash Flow Estimation and Risk Analysis

Corporate Valuation and Financial Planning

Agency Conflicts and Corporate Governance

Distributions to Shareholders: Dividends and Repurchases

Capital Structure Decisions

Supply Chains and Working Capital Management

Multinational Financial Management

Public and Private Financing: Initial Offerings, seasoned Offerings, and Investment Banks

Extension 18 A: Rights Offerings

Lease Financing

Hybrid Financing: Preferred Stock, warrants, and Convertibles

Dynamic Capital Structures

Mergers and Corporate Control

Enterprise Risk Management

Bankruptcy, reorganization, and Liquidation

Portfolio Theory and Asset Pricing Models

Real Options

Advanced Issues in Cash Management and Inventory Control

Pension Plan Management

Financial Management in Not For Profit Businesses

Filters

Exam 27: Providing and Obtaining Credit

Cash discounts are mostly used to get new customers in the door since existing customers almost always use the delayed payment terms.

Which of the following is not correct?

The credit period is the amount of time it takes to do a credit search on a potential customer.

A firm's credit policy consists of which of the following items?

Gladys Turner borrowed $12,000 from the bank using a 10.19 percent "add-on",one-year installment loan,payable in four equal quarterly payments.What is the effective annual rate of interest?

When deciding whether to offer a discount for cash payment,a firm must balance the profits from additional sales with the lost revenues from the discount.

An Overview of Financial Management and the Financial Environment

Financial Statements, cash Flow, and Taxes

Analysis of Financial Statements

Time Value of Money

Bonds, bond Valuation, and Interest Rates

Risk and Return

Valuation of Stocks and Corporations

Financial Options and Applications in Corporate Finance

The Cost of Capital

The Basics of Capital Budgeting: Evaluating Cash Flows

Cash Flow Estimation and Risk Analysis

Corporate Valuation and Financial Planning

Agency Conflicts and Corporate Governance

Distributions to Shareholders: Dividends and Repurchases

Capital Structure Decisions

Supply Chains and Working Capital Management

Multinational Financial Management

Public and Private Financing: Initial Offerings, seasoned Offerings, and Investment Banks

Extension 18 A: Rights Offerings

Lease Financing

Hybrid Financing: Preferred Stock, warrants, and Convertibles

Dynamic Capital Structures

Mergers and Corporate Control

Enterprise Risk Management

Bankruptcy, reorganization, and Liquidation

Portfolio Theory and Asset Pricing Models

Real Options

Advanced Issues in Cash Management and Inventory Control

Pension Plan Management

Financial Management in Not For Profit Businesses

Filters