Question 1

Suppose that you are thinking of opening a lock box.Given that:

Accepted Answer

@#IMG-DLM& What is your gain from such a lock-box

Question 2

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 2 months.

Accepted Answer

Two ways to solve this: The approximate

Question 3

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 4

Which of the following terms of sale is the most restrictive?

Accepted Answer

A)  Net 30 
B)  Seasonal dating 
C)  CBD 
D)  COD 
A)  Net 30 
B)  Seasonal dating 
C)  CBD 
D)  COD

Question 5

The bank's ledger balance for a firm is equal to the:

Accepted Answer

A)  firm's ledger balance less payment float. 
B)  available balance plus net float. 
C)  firm's ledger balance less availability float. 
D)  available balance plus payment float. 
A)  firm's ledger balance less payment float. 
B)  available balance plus net float. 
C)  firm's ledger balance less availability float. 
D)  available balance plus payment float.

Question 6

Your cash manager is currently using wire transfer to obtain collections from distant locations each time that the cash accumulates to $50,000.Evaluate the financial logic of this policy if the wire transfer costs $20,saves 3 days of mail time,and interest rates average 7% annually.

Accepted Answer

A)  Stop the policy; $8.77 is lost with each transfer. 
B)  Stop the policy unless the transfer amount is increased to approximately $65,200. 
C)  Continue the policy at the current transfer amount. 
D)  Improve policy by reducing transfer amount to $34,800. 
A)  Stop the policy; $8.77 is lost with each transfer. 
B)  Stop the policy unless the transfer amount is increased to approximately $65,200. 
C)  Continue the policy at the current transfer amount. 
D)  Improve policy by reducing transfer amount to $34,800.

Question 7

In general,would you suspect that it's getting easier or more difficult to play the float?

Accepted Answer

Float time has decreased dramatically ov

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Find the break-even size of wire transfer if the cost of wire transfer is $20,the daily interest rate is 0.02%,and the reduction in float is 3 days.

Accepted Answer

A)  $1,000 
B)  $25,000 
C)  $33,333 
D)  $100,000 
A)  $1,000 
B)  $25,000 
C)  $33,333 
D)  $100,000

Question 10

Money market securities usually have a maturity of:

Accepted Answer

A)  more than 1 year. 
B)  less than 1 year. 
C)  1 to 3 years. 
D)  less than 91 days. 
A)  more than 1 year. 
B)  less than 1 year. 
C)  1 to 3 years. 
D)  less than 91 days.

Question 11

When you deposit a check,there is a delay before it gets credited to your bank account.This reduces your available balance compared to your ledger balance.Your net float is the difference between the balance in your company ledger and the balance recognized by your bank.

Accepted Answer

A) True 
 B)False

Question 12

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 13

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 14

The cost of holding inventory is the interest paid on the money used to buy the inventory.

Accepted Answer

A) True 
 B)False

Question 15

One way of handling uncertain cash flows is to set an upper and lower limit for cash balances and a return point to which the cash balance is brought to when the upper or lower limit is reached.

Accepted Answer

A) True 
 B)False

Question 16

The break-even probability of collection is positively related to the firm's percentage of profit margin.

Accepted Answer

A) True 
 B)False

Question 17

The total value of payments going through the Fedwire and CHIPS Payment systems is nearly one thousand trillion dollars a year.

Accepted Answer

A) True 
 B)False

Question 18

What is the benefit for a firm with daily sales of $30,000 to be able to speed up collections by 3 days,assuming an 8% annual opportunity cost of funds?

Accepted Answer

A)  $7,200 daily benefit 
B)  $7,200 annual benefit 
C)  $30,000 annual benefit 
D)  $90,000 annual benefit 
A)  $7,200 daily benefit 
B)  $7,200 annual benefit 
C)  $30,000 annual benefit 
D)  $90,000 annual benefit

Question 19

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 20

In 2007,the spread between the yields on commercial paper and Treasury bills increased to over 100 basis points (1.00%).

Accepted Answer

A) True 
 B)False

Exam 12: Risk, Return, and Capital Budgeting

Suppose that you are thinking of opening a lock box.Given that:

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 2 months.

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

Which of the following terms of sale is the most restrictive?

The bank's ledger balance for a firm is equal to the:

Your cash manager is currently using wire transfer to obtain collections from distant locations each time that the cash accumulates to $50,000.Evaluate the financial logic of this policy if the wire transfer costs $20,saves 3 days of mail time,and interest rates average 7% annually.

In general,would you suspect that it's getting easier or more difficult to play the float?

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

Find the break-even size of wire transfer if the cost of wire transfer is $20,the daily interest rate is 0.02%,and the reduction in float is 3 days.

Money market securities usually have a maturity of:

When you deposit a check,there is a delay before it gets credited to your bank account.This reduces your available balance compared to your ledger balance.Your net float is the difference between the balance in your company ledger and the balance recognized by your bank.

The purpose of credit analysis is to:

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

The cost of holding inventory is the interest paid on the money used to buy the inventory.

One way of handling uncertain cash flows is to set an upper and lower limit for cash balances and a return point to which the cash balance is brought to when the upper or lower limit is reached.

The break-even probability of collection is positively related to the firm's percentage of profit margin.

The total value of payments going through the Fedwire and CHIPS Payment systems is nearly one thousand trillion dollars a year.

What is the benefit for a firm with daily sales of $30,000 to be able to speed up collections by 3 days,assuming an 8% annual opportunity cost of funds?

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

In 2007,the spread between the yields on commercial paper and Treasury bills increased to over 100 basis points (1.00%).

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

International Financial Management

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