Question 1

Higher Z scores from a multiple discriminate analysis indicate a:

Accepted Answer

A)  Higher risk of bankruptcy 
B)  Lower degree of creditworthiness 
C)  Lower amount of working capital 
D)  Higher degree of solvency 
A)  Higher risk of bankruptcy 
B)  Lower degree of creditworthiness 
C)  Lower amount of working capital 
D)  Higher degree of solvency

Question 2

Which of the following is the least expensive source of credit information?

Accepted Answer

A)  Dun & Bradstreet 
B)  Moody's 
C)  Standard & Poor's 
D)  Bond ratings 
A)  Dun & Bradstreet 
B)  Moody's 
C)  Standard & Poor's 
D)  Bond ratings

Question 3

In general,a firm's credit policy should grant the credit whenever the expected:

Accepted Answer

A)  Loss from default is less than the cost of the product. 
B)  Profit from granting credit exceeds zero. 
C)  Profit exceeds the price of the product. 
D)  Probability of a loss is less than 50%. 
A)  Loss from default is less than the cost of the product. 
B)  Profit from granting credit exceeds zero. 
C)  Profit exceeds the price of the product. 
D)  Probability of a loss is less than 50%.

Question 4

Which of the following credit decisions appears correct for a customer that intends to order $1,000 of goods annually that have a 20% profit margin if the probability of default is 20% and the discount rate is 10%?

Accepted Answer

A)  Reject because expected loss equals $320 
B)  Reject because expected profit equals $0 
C)  Accept because expected profit equals $1,440 
D)  Accept because expected profit equals $3,200 
A)  Reject because expected loss equals $320 
B)  Reject because expected profit equals $0 
C)  Accept because expected profit equals $1,440 
D)  Accept because expected profit equals $3,200

Question 5

An aging schedule is a statement sent to customers who are behind in payments.

Accepted Answer

A) True 
 B)False

Question 6

The break-even probability of collection is positively related to the firm's percentage of profit margin.

Accepted Answer

A) True 
 B)False

Question 7

A retailer buys Christmas merchandize from the manufacturer on Sep.1.The manufacturer postdates the invoice to Dec.31,and the credit terms of the sale are 2/10,net 30.When is the payment due?

Accepted Answer

A)  Jan. 10 
B)  Jan. 30 
C)  Feb. 10 
D)  Sep. 30 
A)  Jan. 10 
B)  Jan. 30 
C)  Feb. 10 
D)  Sep. 30

Question 8

Which of the following assumptions is made when declaring that the break-even probability of collection is lower for customers with repeat orders?

Accepted Answer

A)  The discount rate is fairly high 
B)  The cost of the item will continually decline 
C)  The sales price of the item will continually increase 
D)  Payment on the first order insures payments on subsequent orders 
A)  The discount rate is fairly high 
B)  The cost of the item will continually decline 
C)  The sales price of the item will continually increase 
D)  Payment on the first order insures payments on subsequent orders

Question 9

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.

Accepted Answer

A)  $2,804 
B)  $2,904 
C)  $3,004 
D)  $3,104 
A)  $2,804 
B)  $2,904 
C)  $3,004 
D)  $3,104

Question 10

With terms of 4/15,net 60,what is the implied interest rate for forgoing a cash discount and paying at the end of the period?

Accepted Answer

A)  25.63% 
B)  28.19% 
C)  39.25% 
D)  61.15% 
A)  25.63% 
B)  28.19% 
C)  39.25% 
D)  61.15%

Question 11

A firm is considering a one-time sale of $100,000 to a customer.The cost of goods sold for this sale is $90,000.If the probability of the customer paying is 0.8,what is the expected profit from this transaction?

Accepted Answer

A)  Zero 
B)  -$10,000 
C)  +$8,000 
D)  +$10,000 
A)  Zero 
B)  -$10,000 
C)  +$8,000 
D)  +$10,000

Question 12

Profits are maximized in a firm when the number of bad accounts is minimized.

Accepted Answer

A) True 
 B)False

Higher Z scores from a multiple discriminate analysis indicate a:

Which of the following is the least expensive source of credit information?

In general,a firm's credit policy should grant the credit whenever the expected:

Which of the following credit decisions appears correct for a customer that intends to order $1,000 of goods annually that have a 20% profit margin if the probability of default is 20% and the discount rate is 10%?

An aging schedule is a statement sent to customers who are behind in payments.

The break-even probability of collection is positively related to the firm's percentage of profit margin.

A retailer buys Christmas merchandize from the manufacturer on Sep.1.The manufacturer postdates the invoice to Dec.31,and the credit terms of the sale are 2/10,net 30.When is the payment due?

Which of the following assumptions is made when declaring that the break-even probability of collection is lower for customers with repeat orders?

With terms of 4/15,net 60,what is the implied interest rate for forgoing a cash discount and paying at the end of the period?

A firm is considering a one-time sale of $100,000 to a customer.The cost of goods sold for this sale is $90,000.If the probability of the customer paying is 0.8,what is the expected profit from this transaction?

Profits are maximized in a firm when the number of bad accounts is minimized.

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

Filters

Exam 22: Credit Management and Collection

Higher Z scores from a multiple discriminate analysis indicate a:

Which of the following is the least expensive source of credit information?

In general,a firm's credit policy should grant the credit whenever the expected:

Which of the following credit decisions appears correct for a customer that intends to order $1,000 of goods annually that have a 20% profit margin if the probability of default is 20% and the discount rate is 10%?

An aging schedule is a statement sent to customers who are behind in payments.

The break-even probability of collection is positively related to the firm's percentage of profit margin.

A retailer buys Christmas merchandize from the manufacturer on Sep.1.The manufacturer postdates the invoice to Dec.31,and the credit terms of the sale are 2/10,net 30.When is the payment due?

Which of the following assumptions is made when declaring that the break-even probability of collection is lower for customers with repeat orders?

With terms of 4/15,net 60,what is the implied interest rate for forgoing a cash discount and paying at the end of the period?

A firm is considering a one-time sale of $100,000 to a customer.The cost of goods sold for this sale is $90,000.If the probability of the customer paying is 0.8,what is the expected profit from this transaction?

Profits are maximized in a firm when the number of bad accounts is minimized.

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

Filters