Exam 12: Risk, Return, and Capital Budgeting

Which statement is true about terms of trade credit of 2/10,net 30?

A firm that buys on credit is in effect borrowing from its supplier.

A banker's acceptance is usually used in overseas trade.

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?

Repos are long-term unsecured loan agreements.

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

What credit decision is appropriate for a potential customer that offers an 80% chance of paying on a $10,000 (present value)sale that has an 80% (present value)cost?

As the number of inventory orders per year increases,the total order costs increase.

Which of the following would not be included in the five Cs of credit?

The Green Transfer Co.utilizes a concentration banking system and is determining whether to request wire transfers or depository transfer checks.What would you suggest,given the following: wire transfer saves 3 days of float but increases costs by $45.The current interest rate is 10% annually.Next year,however,technological changes will occur that reduce the float savings to 2 days from 3,and the incremental costs will be reduced to $35.

Should credit be granted to a customer wishing to purchase a $2,000 item that has been marked up 50% over cost if the probability of collection is only 65%? Assume all cash flows are discounted to present value.

How many cases of microwave popcorn are sold annually by a firm that has total annual order costs of $32,000,orders in units of 100 cases,and is charged $90 per order in addition to the $72 per case product cost?

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

Higher Z scores from a multiple discriminate analysis indicate a:

Why will sellers be less reluctant to grant credit under terms of a banker's acceptance? How do the acceptances work,in general?

When sales are made without the accompaniment of a formal debt contract,the sales are said to be on:

You are buying goods worth $75,000 from a firm that offers the credit terms of 2/10,net 30.What will be the actual payment if you paid within 10 days?

The five Cs of credit refer to the:

A firm with unpredictable cash flows is trying to set upper and lower limits for cash balances.Which of the following factors will result in upper and lower limits being closer to each other?

Following the Z score proposed by Edward Altman,calculate the Z score of a firm with the following financial ratios: EBIT/total assets = .12 Sales/total assets = 1.4 Market equity/book debt = .9 Retained earnings/total assets = .4 Working capital/total assets = .12