Question 1

A system by which firms assign their customers for collection purposes to regional banks that transfer funds to a central bank is known as:

Accepted Answer

A)  a lock-box system. 
B)  a zero-balance account. 
C)  a wire transfer. 
D)  concentration banking. 
A)  a lock-box system. 
B)  a zero-balance account. 
C)  a wire transfer. 
D)  concentration banking.

Question 2

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

Question 3

With rates of return so low on money market instruments,does it actually benefit a firm to pay close attention to cash balances?

Accepted Answer

Opportunity costs are typically lower on

Question 4

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?

Accepted Answer

A)  $120 
B)  $280 
C)  $600 
D)  $1,400 
A)  $120 
B)  $280 
C)  $600 
D)  $1,400

Question 5

An East Coast firm should establish a lock-box service on the West Coast:

Accepted Answer

A)  if the firm has a large number of customers. 
B)  if it has banking facilities in West Coast. 
C)  if West Coast customers are currently mailing their checks to an East Coast address. 
D)  if West Coast banks are more efficient. 
A)  if the firm has a large number of customers. 
B)  if it has banking facilities in West Coast. 
C)  if West Coast customers are currently mailing their checks to an East Coast address. 
D)  if West Coast banks are more efficient.

Question 6

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

Accepted Answer

A)  The discount rate is fairly high. 
B)  The cost of the item will continually decline. 
C)  The sales price of the item will continually increase. 
D)  Payment on the first order ensures payments on subsequent orders. 
A)  The discount rate is fairly high. 
B)  The cost of the item will continually decline. 
C)  The sales price of the item will continually increase. 
D)  Payment on the first order ensures payments on subsequent orders.

Question 7

In general,a firm's credit policy should grant the credit whenever the expected:

Accepted Answer

A)  loss from default is less than the cost of the product. 
B)  profit from granting credit exceeds zero. 
C)  profit exceeds the price of the product. 
D)  probability of a loss is less than 50%. 
A)  loss from default is less than the cost of the product. 
B)  profit from granting credit exceeds zero. 
C)  profit exceeds the price of the product. 
D)  probability of a loss is less than 50%.

Question 8

Explain how financial ratios may be used to predict bankruptcy?

Accepted Answer

Suppose that you are given the task of d

Question 9

Short-term securities have high interest-rate risk.

Accepted Answer

A) True 
 B)False

Question 10

If the volatility of the daily cash flows decrease,a firm will:

Accepted Answer

A)  increase the cash balance. 
B)  decrease the cash balance. 
C)  not change the cash balance. 
D)  increase the return point. 
A)  increase the cash balance. 
B)  decrease the cash balance. 
C)  not change the cash balance. 
D)  increase the return point.

Question 11

In 2007,banks across the world revealed huge losses in the U.S.subprime mortgage market.Investors shrank from illiquid securities and there was a "flight to quality."

Accepted Answer

A) True 
 B)False

Question 12

Which of the following statements is not true?

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 level does 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 level does not rise in direct proportion to sales. As sales increase, the optimal inventory level rises, but more than proportionately.

Question 13

A firm issued three checks for $25,000,$15,000,and $13,000 on January 31,and deposited a $30,000 check into the bank account.None of the checks were cleared by February 1.What is the net float from these transactions?

Accepted Answer

A)  -$23,000 
B)  +$23,000 
C)  -$83,000 
D)  +$83,000 
A)  -$23,000 
B)  +$23,000 
C)  -$83,000 
D)  +$83,000

Question 14

Extending trade credit can increase the probability of repeat orders.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A)  Dun and Bradstreet 
B)  Internal Revenue Service 
C)  Credit Bureau 
D)  Customer's bank 
A)  Dun and Bradstreet 
B)  Internal Revenue Service 
C)  Credit Bureau 
D)  Customer's bank

Question 16

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 17

What is one reason why short-term securities are safe for keeping idle cash balances?

Accepted Answer

A)  Low interest-rate risk 
B)  High returns 
C)  High net present value 
D)  Ease of receiving interest payments 
A)  Low interest-rate risk 
B)  High returns 
C)  High net present value 
D)  Ease of receiving interest payments

Question 18

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

Accepted Answer

A)  Is used to prescreen credit applications 
B)  Analyzes financial ratios to determine credit 
C)  Is less subjective than using individual loan officers 
D)  Is most appropriate for consumer loans 
A)  Is used to prescreen credit applications 
B)  Analyzes financial ratios to determine credit 
C)  Is less subjective than using individual loan officers 
D)  Is most appropriate for consumer loans

Question 19

What are the costs and benefits of holding cash?

Accepted Answer

Cash provides liquidity,but it doesn't p

Question 20

What are the expected annual savings from a lock-box system that collects 150 checks per day averaging $500 each,and reduces mailing and processing times by 2.5 and 1.5 days,respectively,if the annual interest rate is 7%?

Accepted Answer

A)  $5,250 
B)  $13,125 
C)  $21,000 
D)  $300,000 
A)  $5,250 
B)  $13,125 
C)  $21,000 
D)  $300,000

Exam 12: Risk, Return, and Capital Budgeting

A system by which firms assign their customers for collection purposes to regional banks that transfer funds to a central bank 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?

With rates of return so low on money market instruments,does it actually benefit a firm to pay close attention to cash balances?

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?

An East Coast firm should establish a lock-box service on the West Coast:

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

In general,a firm's credit policy should grant the credit whenever the expected:

Explain how financial ratios may be used to predict bankruptcy?

Short-term securities have high interest-rate risk.

If the volatility of the daily cash flows decrease,a firm will:

In 2007,banks across the world revealed huge losses in the U.S.subprime mortgage market.Investors shrank from illiquid securities and there was a "flight to quality."

Which of the following statements is not true?

A firm issued three checks for $25,000,$15,000,and $13,000 on January 31,and deposited a $30,000 check into the bank account.None of the checks were cleared by February 1.What is the net float from these transactions?

Extending trade credit can increase the probability of repeat orders.

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

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

What is one reason why short-term securities are safe for keeping idle cash balances?

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

What are the costs and benefits of holding cash?

What are the expected annual savings from a lock-box system that collects 150 checks per day averaging $500 each,and reduces mailing and processing times by 2.5 and 1.5 days,respectively,if the annual interest rate is 7%?

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

Filters