Question 1

Which one of these is not a characteristic of a concentration system of collections?

Accepted Answer

A)  All surplus funds are electronically transferred to a centralized account. 
B)  Check clearing times are increased. 
C)  Customer payments are directed to a local collection center. 
D)  Collection time is reduced. 
A)  All surplus funds are electronically transferred to a centralized account. 
B)  Check clearing times are increased. 
C)  Customer payments are directed to a local collection center. 
D)  Collection time is reduced.

Question 2

Which one of the following statements is true of repurchase agreements?

Accepted Answer

A)  Their initial 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 initial 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 3

Which one of the following is not included in the five Cs of credit?

Accepted Answer

A)  Character 
B)  Condition 
C)  Consumption 
D)  Capital 
A)  Character 
B)  Condition 
C)  Consumption 
D)  Capital

Question 4

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 5

Repos are long-term unsecured loan agreements.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

The cash cycle is the period between a firm's payment for materials and collection on its sales.

Accepted Answer

A) True 
 B)False

Question 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?

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 9

A $1,200 invoice dated January 1 has credit terms of 3/10,net 30.If the buyer pays January 4,how much will he need to pay?

Accepted Answer

A)  $1,164 
B)  $1,080 
C)  $900 
D)  $1,200 
A)  $1,164 
B)  $1,080 
C)  $900 
D)  $1,200

Question 10

Firms are more likely to grant credit the higher the probability that a potential customer will become a repeat customer.

Accepted Answer

A) True 
 B)False

Question 11

The longer the firm's accounts payable period,the:

Accepted Answer

A)  longer the firm's cash cycle. 
B)  greater the delay in the accounts receivable period. 
C)  less the firm must invest in net working capital. 
D)  shorter the firm's inventory period. 
A)  longer the firm's cash cycle. 
B)  greater the delay in the accounts receivable period. 
C)  less the firm must invest in net working capital. 
D)  shorter the firm's inventory period.

Question 12

A firm's inventory period can be estimated by the ratio of inventory to daily cost of goods sold.

Accepted Answer

A) True 
 B)False

Question 13

A firm's inventory and accounts payable periods are 80 and 42 days,respectively.If the cash cycle is 65 days,what is the firm's receivable period?

Accepted Answer

A)  103 days 
B)  57 days 
C)  38 days 
D)  27 days 
A)  103 days 
B)  57 days 
C)  38 days 
D)  27 days

Question 14

What effective annual rate of interest is being charged to a customer who is granted credit terms of 3/15,net 45 when the customer foregoes the discount and pays on the last date prior to being delinquent?

Accepted Answer

A)  44.86% 
B)  48.29% 
C)  37.67% 
D)  41.84% 
A)  44.86% 
B)  48.29% 
C)  37.67% 
D)  41.84%

Question 15

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

Accepted Answer

A)  a high 
B)  an average 
C)  a low 
D)  a zero 
A)  a high 
B)  an average 
C)  a low 
D)  a zero

Question 16

Most money market instruments have a high degree of liquidity.

Accepted Answer

A) True 
 B)False

Question 17

What is the daily net cost of holding a cash balance of $2.5 million,if the daily interest rate is 0.025% and the average transaction cost of investing money overnight is $50?

Accepted Answer

A)  $121 
B)  $171 
C)  $575 
D)  $675 
A)  $121 
B)  $171 
C)  $575 
D)  $675

Question 18

Which one of the following is not an inventory carrying cost?

Accepted Answer

A)  Insurance expense for the inventory 
B)  Opportunity cost of capital for inventory investment 
C)  Cost of buying raw materials 
D)  Cost of shelf space 
A)  Insurance expense for the inventory 
B)  Opportunity cost of capital for inventory investment 
C)  Cost of buying raw materials 
D)  Cost of shelf space

Question 19

What credit decision is appropriate for a potential customer that offers a 75% chance of paying on a $10,000 sale which has an 80% cost?

Accepted Answer

A)  Grant credit since the expected profit is $3,200. 
B)  Grant credit since the expected profit is $800. 
C)  Refuse credit since the expected profit is negative. 
D)  Refuse credit since the expected loss is zero. 
A)  Grant credit since the expected profit is $3,200. 
B)  Grant credit since the expected profit is $800. 
C)  Refuse credit since the expected profit is negative. 
D)  Refuse credit since the expected loss is zero.

Question 20

Absent any possibility of repeat orders,if the default probability is less than the profit margin,you should extend credit for the sale.

Accepted Answer

A) True 
 B)False

Exam 20: Working Capital Management

Which one of these is not a characteristic of a concentration system of collections?

Which one of the following statements is true of repurchase agreements?

Which one of the following is not included in the five Cs of credit?

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

Repos are long-term unsecured loan agreements.

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

The cash cycle is the period between a firm's payment for materials and collection on its sales.

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?

A $1,200 invoice dated January 1 has credit terms of 3/10,net 30.If the buyer pays January 4,how much will he need to pay?

Firms are more likely to grant credit the higher the probability that a potential customer will become a repeat customer.

The longer the firm's accounts payable period,the:

A firm's inventory period can be estimated by the ratio of inventory to daily cost of goods sold.

A firm's inventory and accounts payable periods are 80 and 42 days,respectively.If the cash cycle is 65 days,what is the firm's receivable period?

What effective annual rate of interest is being charged to a customer who is granted credit terms of 3/15,net 45 when the customer foregoes the discount and pays on the last date prior to being delinquent?

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

Most money market instruments have a high degree of liquidity.

What is the daily net cost of holding a cash balance of $2.5 million,if the daily interest rate is 0.025% and the average transaction cost of investing money overnight is $50?

Which one of the following is not an inventory carrying cost?

What credit decision is appropriate for a potential customer that offers a 75% chance of paying on a $10,000 sale which has an 80% cost?

Absent any possibility of repeat orders,if the default probability is less than the profit margin,you should extend credit for the sale.

Goals and Governance of the Firm

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 and Governance

Venture Capital, IPOs, and Seasoned Offerings

Debt Policy

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Mergers,Acquisitions,and Corporate Control

International Financial Management

Options

Risk Management

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