Exam 22: International Financial Management

Extending trade credit can increase the probability of repeat orders.

What is the break-even probability of collection for a firm that has a 40% profit margin (ignore present value)?

Since defaults can be costly, it is cost effective to undertake a full credit analysis of all customers.

Samana Corporation expects to receive $1,500 along with costs of $1,000 on each non-delinquent sale on credit.The probability of collection is 60%.Determine whether credit should be extended.

Universal Corporation is concerned about their current bad debt ratio of 6%.The CFO believes imposing a more stringent credit policy may reduce sales by 5% and reduce the bad debt ratio to 4%.If the cost of goods sold is 80% of the selling price, determine if the new policy should be undertaken.

Higher Z scores from a multiple discriminate analysis indicate a:

Why will sellers be less reluctant to grant credit under terms of a banker's acceptance? How do the acceptances work, in general?

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.

What is the break-even probability of collection if the present value of the revenues from the sale is $2,200 rather than $2,400? Why does the break-even probability increase? Use your answer to decide whether firms that sell high-profit margin or low-margin goods should be more willing to issue credit.

What happens to the implied interest rate on trade credit as the time interval between the discount period and payment period is decreased?

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

Determine the annual effective rate of a customer that does not take advantage of credit terms of 3/15, n/30.

Discuss the premise behind the validity of a numerical credit scoring system.

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.

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

Which statement is true about terms of trade credit of 2/10, net 30?

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.

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

Ignoring the time value of money, how much does a firm lose on a $2,000 sale that has a 30% profit margin if the 20% probability of default occurs?

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