Question 1

At what point does a customer's unpaid account become delinquent when the terms of sale are 2/10, net 60?

Accepted Answer

A) 11 days after the sale 
B) 31 days after the sale 
C) 61 days after the sale 
D) 71 days after the sale 
A) 11 days after the sale 
B) 31 days after the sale 
C) 61 days after the sale 
D) 71 days after the sale

Question 2

An aging schedule illustrates the relationship between:

Accepted Answer

A) Customers and repeat sales 
B) Sales and profitability 
C) The ratio of accounts receivable to sales 
D) Accounts receivable and their average time outstanding 
A) Customers and repeat sales 
B) Sales and profitability 
C) The ratio of accounts receivable to sales 
D) Accounts receivable and their average time outstanding

Question 3

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

Accepted Answer

1.How quickly and inexpensivel

Question 4

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% Effective annual rate = 
A) 13.01% 
B) 18.00% 
C) 18.43% 
D) 20.13% Effective annual rate =

Question 5

CumChan is contemplating an extension of its credit period from net 15 to net 60.Currently, the CumChan sells 500,000 units annually at a price of $1.20 per unit.The average cost per unit is $0.85.The credit period extension is expected to increase sales by 60,000 units, and increase bad-debt losses by $10,500 per year.The marginal cost per unit for the decreased number of units to be produced is $0.75.If CumChan's tax rate is 45%, and the interest rate on short-term bank loans is 10%, should the firm increase its credit period? What underlying assumptions are important in our analysis?

Accepted Answer

Increase in annual profits @#IMG-DLM& 
Increased a

Question 6

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 7

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

Accepted Answer

A) True 
 B)False

Question 8

Ajax 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 $350 per year for 12 years.Ajax calculates present value with a 15% rate of return.There is a 90% probability that Ajax will secure a reliable customer.However, if the customer defaults, Ajax will have to incur a loss of $500.Determine the expected benefit if credit is granted.

Accepted Answer

A) $1,657 
B) $1,757 
C) $1,857 
D) $1,957 Present value of $350 profit for 12 years at 15% = $1,897
P x PV(REV - COST) - (1-p) x PV(COST) 
A) $1,657 
B) $1,757 
C) $1,857 
D) $1,957 Present value of $350 profit for 12 years at 15% = $1,897
P x PV(REV - COST) - (1-p) x PV(COST)

Question 9

Before spilling coffee on an invoice and obliterating the final due date, you calculate the implied interest cost of trade credit at 24.89% and remember there is a 3% cash discount if paid within 10 days.When is the due date?

Accepted Answer

A) 30 days 
B) 45 days 
C) 60 days 
D) 90 days 
A) 30 days 
B) 45 days 
C) 60 days 
D) 90 days

Question 10

Which of the following statements is correct about banker's acceptances?

Accepted Answer

A) They are equivalent to a sight draft 
B) They represent the norm for installment sales 
C) The bank guarantees payment of the invoice 
D) The bank retains title to the merchandise 
A) They are equivalent to a sight draft 
B) They represent the norm for installment sales 
C) The bank guarantees payment of the invoice 
D) The bank retains title to the merchandise

Question 11

Which of the following would be least expected to change as a result of a higher average age of receivables?

Accepted Answer

A) Current ratio 
B) Total collection costs 
C) Accounts payable 
D) Bad debt expense 
A) Current ratio 
B) Total collection costs 
C) Accounts payable 
D) Bad debt expense

Question 12

Suppose CumChan Inc.sells goods on terms 2/10 net 20.On January 1 you would buy goods from CumChan with invoice value of $40,000.How much would you need to pay if you took the cash discount? What is the latest date on which the cash discount is available? By what date should you pay for your purchase if you decide not to take the cash discount?

Accepted Answer

To get the cash discount you have to pay

Question 13

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 14

A breakdown of accounts receivable according to the length of time outstanding is known as a(n):

Accepted Answer

A) Amortization schedule 
B) Sources of cash flow statement 
C) Receivables inventory 
D) Aging schedule 
A) Amortization schedule 
B) Sources of cash flow statement 
C) Receivables inventory 
D) Aging schedule

Question 15

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

Accepted Answer

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

Question 16

A purchaser was offered terms of trade credit of 2/10, net 30, with an invoice date of January 1.Which one of the following acts threatens creditworthiness?

Accepted Answer

A) Taking the discount, paying on January 5 
B) Taking the discount, paying on January 10 
C) Ignoring the discount, paying on January 30 
D) Ignoring the discount, paying on February 9 
A) Taking the discount, paying on January 5 
B) Taking the discount, paying on January 10 
C) Ignoring the discount, paying on January 30 
D) Ignoring the discount, paying on February 9

Question 17

Jomal Corporation expects to receive $2,300 along with costs of $1,800 on each non-delinquent sale on credit.The probability of collection is 85%.Determine whether credit should be extended.

Accepted Answer

A) Extend credit - net benefit of $155 
B) Extend credit - net benefit of $80 
C) Do not extend credit - net detriment of $155 
D) Do not extend credit - net detriment of $80 p x PV(REV - COST) - (1-p) x PV(COST) 
A) Extend credit - net benefit of $155 
B) Extend credit - net benefit of $80 
C) Do not extend credit - net detriment of $155 
D) Do not extend credit - net detriment of $80 p x PV(REV - COST) - (1-p) x PV(COST)

Question 18

Determine the annual effective rate of a customer that does not take advantage of credit terms of 2/10, n/30.

Accepted Answer

A) 38.59% 
B) 40.59% 
C) 42.59% 
D) 44.59% 
A) 38.59% 
B) 40.59% 
C) 42.59% 
D) 44.59%

Question 19

The purpose of credit analysis is to:

Accepted Answer

A) Reconcile the accounts receivable balance 
B) Modify the terms of trade credit 
C) Organize the right side of the balance sheet 
D) Decide whether of not to grant credit to a customer 
A) Reconcile the accounts receivable balance 
B) Modify the terms of trade credit 
C) Organize the right side of the balance sheet 
D) Decide whether of not to grant credit to a customer

Question 20

Which of the following financial ratios has the highest weight in Altman's Z score estimation?

Accepted Answer

A) Working capital/total assets 
B) Retained earnings/total assets 
C) EBIT/total assets 
D) Sales/total assets 
A) Working capital/total assets 
B) Retained earnings/total assets 
C) EBIT/total assets 
D) Sales/total assets

Exam 22: International Financial Management

At what point does a customer's unpaid account become delinquent when the terms of sale are 2/10, net 60?

An aging schedule illustrates the relationship between:

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

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

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?

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

Before spilling coffee on an invoice and obliterating the final due date, you calculate the implied interest cost of trade credit at 24.89% and remember there is a 3% cash discount if paid within 10 days.When is the due date?

Which of the following statements is correct about banker's acceptances?

Which of the following would be least expected to change as a result of a higher average age of receivables?

An accepted time draft is quite similar to:

A breakdown of accounts receivable according to the length of time outstanding is known as a(n):

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

A purchaser was offered terms of trade credit of 2/10, net 30, with an invoice date of January 1.Which one of the following acts threatens creditworthiness?

Jomal Corporation expects to receive $2,300 along with costs of $1,800 on each non-delinquent sale on credit.The probability of collection is 85%.Determine whether credit should be extended.

Determine the annual effective rate of a customer that does not take advantage of credit terms of 2/10, n/30.

The purpose of credit analysis is to:

Which of the following financial ratios has the highest weight in Altman's Z score estimation?

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