Question 1

The Five C's of Credit refer to the:

Accepted Answer

A) Credit reports issued by Dun & Bradstreet 
B) Interpretation of numerical credit scoring systems 
C) Attributes that help determine creditworthiness 
D) Financial ratios used to determine Altman's Z score 
A) Credit reports issued by Dun & Bradstreet 
B) Interpretation of numerical credit scoring systems 
C) Attributes that help determine creditworthiness 
D) Financial ratios used to determine Altman's Z score C

Question 2

Should credit be granted to a customer wishing to purchase a $2,000 item that has been marked-up 50% over cost if the probability of collection is only 65%? Assume all cash flows are discounted to present value.

Accepted Answer

A) No; the expected loss is $33.33 
B) No; the expected loss is $150.00 
C) Yes; the expected profit is $33.33 
D) Yes; the expected profit is $150.00 expected profit = .65($2,000 x (50/150)) - .35($2,000 x (100/150))
= )65($666.67) - .35($1,333.34)
= $433.34 - $466.67 
A) No; the expected loss is $33.33 
B) No; the expected loss is $150.00 
C) Yes; the expected profit is $33.33 
D) Yes; the expected profit is $150.00 expected profit = .65($2,000 x (50/150)) - .35($2,000 x (100/150))
= )65($666.67) - .35($1,333.34)
= $433.34 - $466.67 A

Question 3

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

Accepted Answer

A) Increase the cash discount percentage 
B) Extend the discount period 
C) Extend the payment period 
D) All changes above will increase the effective rate 
A) Increase the cash discount percentage 
B) Extend the discount period 
C) Extend the payment period 
D) All changes above will increase the effective rate A

Question 4

A higher score in a typical questionnaire for credit scoring analysis indicates a higher creditworthiness.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following credit agreements will provide the highest likelihood of cash payment to a seller of goods?

Accepted Answer

A) Banker's acceptance 
B) Time draft 
C) Open account 
D) Conditional sale 
A) Banker's acceptance 
B) Time draft 
C) Open account 
D) Conditional sale

Question 6

The more liberal the terms of the collection policy, the less the potential for bad debts and unprofitable sales.

Accepted Answer

A) True 
 B)False

Question 7

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?

Accepted Answer

Expected profit:
= p *@#IMG-DLM& - (1 - p) * Cost

Question 8

Determine the break-even probability of collection for the following seller: $2,000 average invoice, 64% costs, 1% per month opportunity cost of capital.Assume that production costs were just paid and that receivables are outstanding an average of two months.Given these characteristics of credit, what is the expected profit from a customer that is perceived to offer an 85% probability of collection?

Accepted Answer

Expected profit = .85 * PV(200

Question 9

Commercial drafts are issued by a customer's bank.

Accepted Answer

A) True 
 B)False

Question 10

Progress payments allow the customers to choose the payment schedule.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following statements is typically correct concerning the break-even probability of collection for repeat sale customers?

Accepted Answer

A) Break-even probability is higher than for single sale customers 
B) Break-even probability is lower than for single sale customers 
C) The break-even probability does not change between single sale and repeat sale customers 
D) Sales should never be refused for customers offering the potential of repeat sales 
A) Break-even probability is higher than for single sale customers 
B) Break-even probability is lower than for single sale customers 
C) The break-even probability does not change between single sale and repeat sale customers 
D) Sales should never be refused for customers offering the potential of repeat sales

Question 12

Select the earliest date below which does not deserve a cash discount if the terms of a January 1 sale are 2/10, EOM, net 30?

Accepted Answer

A) January 2 
B) January 12 
C) February 2 
D) February 12 
A) January 2 
B) January 12 
C) February 2 
D) February 12

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

Which of the following would not be included in the five C's of credit?

Accepted Answer

A) Character 
B) Condition 
C) Charges 
D) Capital 
A) Character 
B) Condition 
C) Charges 
D) Capital

Question 15

Credit analysis is a procedure used to determine the implied cost of trade credit.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

Credit policy refers to the decision to

Question 17

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

Accepted Answer

A) The firm earns interest on the receivables 
B) Product demand is increased during the low-sales months of the year 
C) The firm is experiencing cash flow difficulties 
D) The firm develops repeat business 
A) The firm earns interest on the receivables 
B) Product demand is increased during the low-sales months of the year 
C) The firm is experiencing cash flow difficulties 
D) The firm develops repeat business

Question 18

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 19

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 20

A firm offered 3/10, net 30 as terms of trade credit on a $1,000 invoice dated January 1.How much must the purchaser offer to pay in full on January 4th?

Accepted Answer

A) $970.00 
B) $971.16 
C) $1,000.00 
D) $1,030.00 
A) $970.00 
B) $971.16 
C) $1,000.00 
D) $1,030.00

Exam 22: International Financial Management

The Five C's of Credit refer to the:

Should credit be granted to a customer wishing to purchase a $2,000 item that has been marked-up 50% over cost if the probability of collection is only 65%? Assume all cash flows are discounted to present value.

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

A higher score in a typical questionnaire for credit scoring analysis indicates a higher creditworthiness.

Which of the following credit agreements will provide the highest likelihood of cash payment to a seller of goods?

The more liberal the terms of the collection policy, the less the potential for bad debts and unprofitable sales.

Commercial drafts are issued by a customer's bank.

Progress payments allow the customers to choose the payment schedule.

Which of the following statements is typically correct concerning the break-even probability of collection for repeat sale customers?

Select the earliest date below which does not deserve a cash discount if the terms of a January 1 sale are 2/10, EOM, net 30?

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

Which of the following would not be included in the five C's of credit?

Credit analysis is a procedure used to determine the implied cost of trade credit.

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

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

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

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

A firm offered 3/10, net 30 as terms of trade credit on a $1,000 invoice dated January 1.How much must the purchaser offer to pay in full on January 4th?

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 Policy

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Working Capital Management

Mergers, Acquisitions, and Corporate Control

Options

Risk Management

Conclusion

What We Do and Do Not Know About Finance

Filters

A firm offered 3/10, net 30 as terms of trade credit on a $1,000 invoice dated January 1.How much must the purchaser offer to pay in full on January 4^th?