Exam 12: Risk, Return, and Capital Budgeting

A firm currently offers terms of sale of 3/20,net 40.What effect will the following actions have on the implicit interest rate charged to customers that pass up the cash discount? State whether the implicit interest rate will increase or decrease. a.The terms are changed to 4/20,net 40. b.The terms are changed to 3/30,net 40. c.The terms are changed to 3/20,net 30.

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

Average daily collection of checks for a firm is $50,000.The firm also writes on the average $35,000 of checks daily.If the collection period for checks is 5 days,calculate the net float.

Under the terms of a sight draft,the buyer's bank:

Which of the following changes to the terms of credit would make the effective annual rate increase?

Lock-box systems allow local banks to collect and process the firm's remittance from that area.

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

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

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

It may be possible for firms to reduce the time and expense necessary to collect delinquent debts under a(n):

What happens to the implied interest rate on trade credit as the time interval between the discount period and payment period is decreased?

Your firm's ledger shows a balance of $1 million which reflects today's $75,000 deposit and a check for $50,000 that went out in yesterday's mail.What is the bank's ledger balance for your account?

Profits are maximized in a firm when the number of bad accounts is minimized.

Which of the following financial ratios is not used to develop Altman's Z-score from multiple discriminant analysis?

Optimal inventory levels are lower when carrying costs are high,and are higher when the cost of restocking inventories is high.

How much value would be added to a firm that could permanently reduce its collection period by 2 days if daily collections average $10,000 and the opportunity cost is 5% annually?

Which firm will benefit the most from a lock-box service?

An accepted time draft is quite similar to:

A firm with ______ profit margin should extend credit to customers with a high probability of default.

Which of the following statements is correct for a firm that currently has total costs of carrying and ordering inventory that are 50% higher than total carrying costs?