Question 1

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

Accepted Answer

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

Question 2

Assuming that a credit decision has been analyzed and credit refused due to a negative expected profit,which of the following changes,if of sufficient magnitude,might change the decision to one of approval?

Accepted Answer

A)  Increase the percentage of profit margin. 
B)  Decrease the probability of payment. 
C)  Increase the discount rate. 
D)  Reduce the expected profit. 
A)  Increase the percentage of profit margin. 
B)  Decrease the probability of payment. 
C)  Increase the discount rate. 
D)  Reduce the expected profit. A

Question 3

How much money can be saved annually by setting up a lock-box system that will process 500 checks per day at a cost of $0.20 per check if each check averages $220,collection float is reduced by 3 days,and the annual interest rate is 8%?

Accepted Answer

A)  -$27,700 
B)  -$10,100 
C)  $10,000 
D)  $16,400 
A)  -$27,700 
B)  -$10,100 
C)  $10,000 
D)  $16,400 B

Question 4

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 5

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 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

Which of the following is correct concerning terms of trade credit of 4/10,EOM,net 90?

Accepted Answer

A)  The discount period expires on the last day of the month. 
B)  The invoice becomes delinquent 90 days after the last day of the month. 
C)  The discount period ends on the 10th day of the month following the invoice. 
D)  The discount period ends either 10 days after invoicing or at the end of the month, whichever is earlier. 
A)  The discount period expires on the last day of the month. 
B)  The invoice becomes delinquent 90 days after the last day of the month. 
C)  The discount period ends on the 10th day of the month following the invoice. 
D)  The discount period ends either 10 days after invoicing or at the end of the month, whichever is earlier.

Question 8

The Canine Kennel uses 600 cases of dog food annually and orders 40 cases in each shipment.If the annual carrying cost per case (due to opportunity costs and extremely large dogs)is $5,what is the total annual carrying cost for dog food?

Accepted Answer

A)  $100 
B)  $196 
C)  $200 
D)  $250 
A)  $100 
B)  $196 
C)  $200 
D)  $250

Question 9

A common characteristic of money market instruments is their high degree of liquidity.

Accepted Answer

A) True 
 B)False

Question 10

A primary purpose of restricting the investment of idle cash balances to money market instruments is to:

Accepted Answer

A)  obtain government guarantees on the investment. 
B)  minimize transaction costs. 
C)  carry a minimal amount of interest-rate risk. 
D)  have a continual market for selling the investment. 
A)  obtain government guarantees on the investment. 
B)  minimize transaction costs. 
C)  carry a minimal amount of interest-rate risk. 
D)  have a continual market for selling the investment.

Question 11

A break-down 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 12

A company gains,as a result of net float,the amount on checks that has been deposited by a company but that has not been cleared.

Accepted Answer

A) True 
 B)False

Question 13

Assuming that the firm can either hold cash paying no interest or invest in marketable securities,which of the following might induce the manager to hold higher cash balances?

Accepted Answer

A)  The cost of borrowing is high relative to interest rates on marketable securities. 
B)  Future cash flows are relatively predictable. 
C)  The cost of cash balances is relatively high. 
D)  Bank interest rates are expected to increase. 
A)  The cost of borrowing is high relative to interest rates on marketable securities. 
B)  Future cash flows are relatively predictable. 
C)  The cost of cash balances is relatively high. 
D)  Bank interest rates are expected to increase.

Question 14

Describe the Z score suggested by Edward Altman.

Accepted Answer

Firms use several statistical techniques

Question 15

Which of the following statements is true regarding repurchase agreements?

Accepted Answer

A)  Their maturity is greater than 1 year. 
B)  They are an unsecured form of borrowing. 
C)  U.S. Treasury securities serve as their collateral. 
D)  They make explicit, rather than implicit, interest payments. 
A)  Their maturity is greater than 1 year. 
B)  They are an unsecured form of borrowing. 
C)  U.S. Treasury securities serve as their collateral. 
D)  They make explicit, rather than implicit, interest payments.

Question 16

Concentration banking allows the banks to use the local collection system to clear the customers' checks.

Accepted Answer

A) True 
 B)False

Question 17

How much time must be saved to justify a lock-box system that processes 350 checks per day at an average amount of $400 per check if the system will cost $20,000 annually and interest rates average 8%?

Accepted Answer

A)  0.56 days 
B)  1.79 days 
C)  2.14 days 
D)  7.00 days 
A)  0.56 days 
B)  1.79 days 
C)  2.14 days 
D)  7.00 days

Question 18

What are some of the ways that companies receive and make payments?

Accepted Answer

When you write a check,it takes time bef

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

A manager estimates that her firm benefits from an average float time of 6 days.Which of the following is true if the firm averages $15,000 per day in payments?

Accepted Answer

A)  The firm is losing interest on $90,000 per year. 
B)  The firm's ledger balance averages $90,000 more than the bank's ledger balance. 
C)  The firm has $45,000 in net float. 
D)  The available balance at the bank is $90,000 greater than shown on the firm's books. 
A)  The firm is losing interest on $90,000 per year. 
B)  The firm's ledger balance averages $90,000 more than the bank's ledger balance. 
C)  The firm has $45,000 in net float. 
D)  The available balance at the bank is $90,000 greater than shown on the firm's books.

Exam 12: Risk, Return, and Capital Budgeting

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

Assuming that a credit decision has been analyzed and credit refused due to a negative expected profit,which of the following changes,if of sufficient magnitude,might change the decision to one of approval?

How much money can be saved annually by setting up a lock-box system that will process 500 checks per day at a cost of $0.20 per check if each check averages $220,collection float is reduced by 3 days,and the annual interest rate is 8%?

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

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

Which of the following is correct concerning terms of trade credit of 4/10,EOM,net 90?

The Canine Kennel uses 600 cases of dog food annually and orders 40 cases in each shipment.If the annual carrying cost per case (due to opportunity costs and extremely large dogs)is $5,what is the total annual carrying cost for dog food?

A common characteristic of money market instruments is their high degree of liquidity.

A primary purpose of restricting the investment of idle cash balances to money market instruments is to:

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

A company gains,as a result of net float,the amount on checks that has been deposited by a company but that has not been cleared.

Assuming that the firm can either hold cash paying no interest or invest in marketable securities,which of the following might induce the manager to hold higher cash balances?

Describe the Z score suggested by Edward Altman.

Which of the following statements is true regarding repurchase agreements?

Concentration banking allows the banks to use the local collection system to clear the customers' checks.

How much time must be saved to justify a lock-box system that processes 350 checks per day at an average amount of $400 per check if the system will cost $20,000 annually and interest rates average 8%?

What are some of the ways that companies receive and make payments?

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

A manager estimates that her firm benefits from an average float time of 6 days.Which of the following is true if the firm averages $15,000 per day in payments?

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

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Mergers, Acquisitions, and Corporate Control

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