Question 1

What is the break-even probability of collection when the present value of revenues from a sale is $100,000 and the present value of cost is $87,000?

Accepted Answer

A)  1.00 
B)  0.87 
C)  0.74 
D) 0.13 
A)  1.00 
B)  0.87 
C)  0.74 
D) 0.13

Question 2

Which one of the following is most apt to discourage purchasers from taking 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 3

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

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A)  Dun and Bradstreet 
B)  Chamber of Commerce 
C)  Credit Bureau 
D) Customer's bank 
A)  Dun and Bradstreet 
B)  Chamber of Commerce 
C)  Credit Bureau 
D) Customer's bank

Question 5

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 6

What is the minimum probability of collection that should be accepted by firms that have a 25% profit margin? Ignore the time value of money.

Accepted Answer

A)  20% 
B)  25% 
C)  50% 
D) 75% 
A)  20% 
B)  25% 
C)  50% 
D) 75%

Question 7

What effective annual rate of interest is being charged to a customer who is granted credit terms of 3/15, net 45 when the customer foregoes the discount and pays on the last date prior to being delinquent?

Accepted Answer

A)  44.86% 
B)  48.29% 
C)  37.67% 
D) 41.84% 
A)  44.86% 
B)  48.29% 
C)  37.67% 
D) 41.84%

Question 8

What is the break-even probability of collection for a firm that has a 40% profit margin?

Accepted Answer

A)  24% 
B)  40% 
C)  60% 
D) 80% 
A)  24% 
B)  40% 
C)  60% 
D) 80%

Question 9

What essential features of inventory management are successfully captured by the economic order quantity model?

Accepted Answer

In calculating the economic order quanti

Question 10

The set of rules that determines whether or not credit should be extended is known as:

Accepted Answer

A)  credit analysis. 
B)  credit policy. 
C)  multiple discriminate analysis. 
D) the terms of trade credit. 
A)  credit analysis. 
B)  credit policy. 
C)  multiple discriminate analysis. 
D) the terms of trade credit.

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)  $0 
B)  -$10,000 
C)  +$8,000 
D) +$10,000 
A)  $0 
B)  -$10,000 
C)  +$8,000 
D) +$10,000

Question 12

Most large payments between business entities are made electronically through either CHIPS or Fedwire.

Accepted Answer

A) True 
 B)False

Question 13

Check conversion is the process of:

Accepted Answer

A)  recording all checks electronically for retention purposes. 
B)  displaying a copy of all your checks on your bank statements. 
C)  debiting your bank account at the point of sale when you pay by check. 
D) converting a one-time payment into repetitive payments of equal amount. 
A)  recording all checks electronically for retention purposes. 
B)  displaying a copy of all your checks on your bank statements. 
C)  debiting your bank account at the point of sale when you pay by check. 
D) converting a one-time payment into repetitive payments of equal amount.

Question 14

Which of the following statements is false?

Accepted Answer

A)  Optimal inventory levels involve a trade-off between carrying costs and order costs. 
B)  Carrying costs include the cost of storing goods as well as the cost of capital tied up in inventory. 
C)  Inventory levels will be lower when storage or interest costs are high and will be higher when restocking costs are high. 
D) Inventory levels do not rise in direct proportion to sales. As sales increase, the optimal inventory level rises, but more than proportionately. 
A)  Optimal inventory levels involve a trade-off between carrying costs and order costs. 
B)  Carrying costs include the cost of storing goods as well as the cost of capital tied up in inventory. 
C)  Inventory levels will be lower when storage or interest costs are high and will be higher when restocking costs are high. 
D) Inventory levels do not rise in direct proportion to sales. As sales increase, the optimal inventory level rises, but more than proportionately.

Question 15

Potential savings from a lock-box system will be reduced by:

Accepted Answer

A)  the additional processing time required. 
B)  the additional mailing time required. 
C)  local bank charges. 
D) an increase in interest rates. 
A)  the additional processing time required. 
B)  the additional mailing time required. 
C)  local bank charges. 
D) an increase in interest rates.

Question 16

The five Cs of credit refer to the:

Accepted Answer

A)  credit reports issued by Dun and 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 and Bradstreet. 
B)  interpretation of numerical credit scoring systems. 
C)  attributes that help determine creditworthiness. 
D) financial ratios used to determine Altman's Z score.

Question 17

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 or 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 or not to grant credit to a customer.

Question 18

FastBucks has offered to set up a concentration banking system that will save 3 days of mail float and 1 day of processing float. Your receivables average $20,000 per day and the opportunity cost of funds is 6%. How much would you be willing to pay FastBucks annually to administer the system perpetually?

Accepted Answer

A)  $2,400 
B)  $4,800 
C)  $40,000 
D) $80,000 
A)  $2,400 
B)  $4,800 
C)  $40,000 
D) $80,000

Question 19

Which one of the following credit agreements provides the least protection to the seller?

Accepted Answer

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

Question 20

Explain how financial ratios may be used to predict bankruptcy.

Accepted Answer

Suppose that you are given the task of d

Exam 20: Working Capital Management

What is the break-even probability of collection when the present value of revenues from a sale is $100,000 and the present value of cost is $87,000?

Which one of the following is most apt to discourage purchasers from taking a discount?

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

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

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

What is the minimum probability of collection that should be accepted by firms that have a 25% profit margin? Ignore the time value of money.

What effective annual rate of interest is being charged to a customer who is granted credit terms of 3/15, net 45 when the customer foregoes the discount and pays on the last date prior to being delinquent?

What is the break-even probability of collection for a firm that has a 40% profit margin?

What essential features of inventory management are successfully captured by the economic order quantity model?

The set of rules that determines whether or not credit should be extended is known as:

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?

Most large payments between business entities are made electronically through either CHIPS or Fedwire.

Check conversion is the process of:

Which of the following statements is false?

Potential savings from a lock-box system will be reduced by:

The five Cs of credit refer to the:

The purpose of credit analysis is to:

Which one of the following credit agreements provides the least protection to the seller?

Explain how financial ratios may be used to predict bankruptcy.

Goals and Governance of the Corporation

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

How Corporations Raise Venture Capital and Issue Securities

Debt Policy

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

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