Question 1

An accepted time draft is quite similar to:

Accepted Answer

A)  Selling on open account 
B)  A conditional sale 
C)  A cheque dated in the future 
D)  An overdue account 
A)  Selling on open account 
B)  A conditional sale 
C)  A cheque dated in the future 
D)  An overdue account

Question 2

It may be possible for firms to reduce the time and expense necessary to collect delinquent debts under a(n):

Accepted Answer

A)  Promissory note 
B)  Conditional sale 
C)  Open account 
D)  EOM billing 
A)  Promissory note 
B)  Conditional sale 
C)  Open account 
D)  EOM billing

Question 3

List three factors that affect a company's desired minimum cash balance.

Accepted Answer

1.How quickly and inexpensivel

Question 4

What information can the financial manager obtain from an aging schedule of accounts receivable?

Accepted Answer

The purpose of an aging schedule is to l

Question 5

Which of the following would not be a customary source of credit information on customers?

Accepted Answer

A)  Dun & Bradstreet 
B)  Canada Customs and Revenue Agency 
C)  Credit Bureau 
D)  Customer's bank 
A)  Dun & Bradstreet 
B)  Canada Customs and Revenue Agency 
C)  Credit Bureau 
D)  Customer's bank

Question 6

How do firms decide whether it makes sense to grant credit to a customer?

Accepted Answer

Credit policy refers to the decision to

Question 7

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

Accepted Answer

A)  A higher discount percentage with shorter payment period. 
B)  A shorter payment period with longer discount period. 
C)  A longer discount period with higher discount percentage 
D)  A longer payment period with lower discount period. 
A)  A higher discount percentage with shorter payment period. 
B)  A shorter payment period with longer discount period. 
C)  A longer discount period with higher discount percentage 
D)  A longer payment period with lower discount period.

Question 8

The potential benefits of additional credit analysis should always be weighed against the incremental costs.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A)  Extend credit; total benefit of $5,300 
B)  Extend credit; total benefit of $5,500 
C)  Do not extend credit; total loss of $5,300 
D)  Do not extend credit; total loss of $5,500 
A)  Extend credit; total benefit of $5,300 
B)  Extend credit; total benefit of $5,500 
C)  Do not extend credit; total loss of $5,300 
D)  Do not extend credit; total loss of $5,500

Question 10

Would it ever make financial sense to forgo cash discounts that are offered from suppliers? Can you provide an example?

Accepted Answer

The provision of trade credit is a form

Question 11

Bond ratings are an inexpensive source of credit information on publicly traded companies.

Accepted Answer

A) True 
 B)False

Question 12

What is the effective annual rate of trade credit if the trade credit terms are 1/10,net 30?

Accepted Answer

A)  13.01% 
B)  18.00% 
C)  18.43% 
D)  20.13% 
A)  13.01% 
B)  18.00% 
C)  18.43% 
D)  20.13%

Question 13

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

Accepted Answer

A)  Used to prescreen credit applications 
B)  Used shareholders' income tax returns 
C)  Less subjective than using individual loan officers 
D)  Most appropriate for consumer loans 
A)  Used to prescreen credit applications 
B)  Used shareholders' income tax returns 
C)  Less subjective than using individual loan officers 
D)  Most appropriate for consumer loans

Question 14

When does it make sense to ask customers for formal IOUs?

Accepted Answer

When a customer places a large order and

Question 15

Under the terms of a sight draft,the buyer's bank:

Accepted Answer

A)  Is instructed to make immediate payment 
B)  Treats the invoice like a postdated cheques 
C)  Forwards the acceptance to the seller until due 
D)  Treats the purchase as a conditional sale 
A)  Is instructed to make immediate payment 
B)  Treats the invoice like a postdated cheques 
C)  Forwards the acceptance to the seller until due 
D)  Treats the purchase as a conditional sale

Question 16

What are the usual steps in credit management?

Accepted Answer

The first step in credit management is t

Question 17

Assuming that a credit decision has been analyzed and credit refused due to a negative expected profit,which of the following changes,if of sufficient magnitude,might change the decision to one of approval?

Accepted Answer

A)  Increase the percentage of profit margin 
B)  Decrease the probability of payment 
C)  Increase the discount rate 
D)  Reduce the expected profit 
A)  Increase the percentage of profit margin 
B)  Decrease the probability of payment 
C)  Increase the discount rate 
D)  Reduce the expected profit

Question 18

Commercial drafts are issued by a customer's bank.

Accepted Answer

A) True 
 B)False

Question 19

How do firms decide whether to grant credit to a customer?

Accepted Answer

The decision to extend credit to a custo

Question 20

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?

Accepted Answer

A)  Take the discount but pay after the discount period. 
B)  Borrow from the bank and take the discount. 
C)  Ignore the discount, pay at the end of the period. 
D)  Take the discount and hope for longer payment float. 
A)  Take the discount but pay after the discount period. 
B)  Borrow from the bank and take the discount. 
C)  Ignore the discount, pay at the end of the period. 
D)  Take the discount and hope for longer payment float.

Exam 22: Credit Management and Collection

An accepted time draft is quite similar to:

It may be possible for firms to reduce the time and expense necessary to collect delinquent debts under a(n):

List three factors that affect a company's desired minimum cash balance.

What information can the financial manager obtain from an aging schedule of accounts receivable?

Which of the following would not be a customary source of credit information on customers?

How do firms decide whether it makes sense to grant credit to a customer?

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

The potential benefits of additional credit analysis should always be weighed against the incremental costs.

Would it ever make financial sense to forgo cash discounts that are offered from suppliers? Can you provide an example?

Bond ratings are an inexpensive source of credit information on publicly traded companies.

What is the effective annual rate of trade credit if the trade credit terms are 1/10,net 30?

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

When does it make sense to ask customers for formal IOUs?

Under the terms of a sight draft,the buyer's bank:

What are the usual steps in credit management?

Assuming that a credit decision has been analyzed and credit refused due to a negative expected profit,which of the following changes,if of sufficient magnitude,might change the decision to one of approval?

Commercial drafts are issued by a customer's bank.

How do firms decide whether to grant credit to a customer?

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?

Goals and Governance of the Firm

Financial Markets and Institutions

Accounting and Finance

Measuring Corporate Performance

The Time Value of Money

Valuing Bonds

Valuing Stocks

Net Present Value and Other Investment Criteria

Using Discounted Cash Flow Analysis to Make Investment Decisions

Project Analysis

Introduction to Risk, Return, and the Opportunity Cost of Capital

Risk, Return, and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing and Governance

Venture Capital, IPOs, and Seasoned Offerings

Debt and Payout Policy

Leasing

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Cash and Inventory Management

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

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