Question 1

For a JIT inventory system to be efficient,the:

Accepted Answer

A) inventory must have an independent demand. 
B) firm's suppliers need to be able to deliver goods quickly upon order. 
C) managers must limit production each day to a set quantity. 
D) firm must be a reseller of goods,not a manufacturer. 
E) supplying firm must be a subsidiary of the ordering firm. 
A) inventory must have an independent demand. 
B) firm's suppliers need to be able to deliver goods quickly upon order. 
C) managers must limit production each day to a set quantity. 
D) firm must be a reseller of goods,not a manufacturer. 
E) supplying firm must be a subsidiary of the ordering firm.

Question 2

Alexander Moore & Co.is willing to offer credit on a one-time purchase provided the NPV of the transaction is at least $50 at a required monthly return of 2 percent.Assume a potential sale has a sales price of $248 and a variable cost of $164.What is the maximum probability of default that will result in an acceptable offer?

Accepted Answer

A) 32.55 percent 
B) 29.62 percent 
C) 11.98 percent 
D) 10.02 percent 
E) 18.50 percent 
A) 32.55 percent 
B) 29.62 percent 
C) 11.98 percent 
D) 10.02 percent 
E) 18.50 percent

Question 3

Sisler's sells 382,000 units a year and orders 10,000 units at a time.The cost of placing an order is $24.90.What is the firm's annual total restocking cost?

Accepted Answer

A) $909.09 
B) $984.23 
C) $951.18 
D) $1,023.02 
E) $811.19 
A) $909.09 
B) $984.23 
C) $951.18 
D) $1,023.02 
E) $811.19

Question 4

The credit period begins on the:

Accepted Answer

A) shipping date. 
B) purchase order date. 
C) shipping arrival date. 
D) order process date. 
E) invoice date. 
A) shipping date. 
B) purchase order date. 
C) shipping arrival date. 
D) order process date. 
E) invoice date.

Question 5

Cash discounts:

Accepted Answer

A) increase the amount of credit offered. 
B) increase profit margins on sales. 
C) speed up the collection of receivables. 
D) were first offered in the early 1900s. 
E) are a cost-free means of increasing sales. 
A) increase the amount of credit offered. 
B) increase profit margins on sales. 
C) speed up the collection of receivables. 
D) were first offered in the early 1900s. 
E) are a cost-free means of increasing sales.

Question 6

Which one of the following statements is false as it relates to considerations firms use when establishing a credit policy?

Accepted Answer

A) A firm that supplies a perishable product will tend to offer restrictive credit terms. 
B) A firm whose customers are in a high-risk business will tend to offer restrictive credit terms. 
C) Lengthening the credit period effectively reduces the price paid by the customer. 
D) Small accounts,associated with firms that find it difficult to acquire a line of credit,tend to receive longer credit periods. 
E) Larger accounts tend to receive more favorable credit terms. 
A) A firm that supplies a perishable product will tend to offer restrictive credit terms. 
B) A firm whose customers are in a high-risk business will tend to offer restrictive credit terms. 
C) Lengthening the credit period effectively reduces the price paid by the customer. 
D) Small accounts,associated with firms that find it difficult to acquire a line of credit,tend to receive longer credit periods. 
E) Larger accounts tend to receive more favorable credit terms.

Question 7

The average collection period measures the average:

Accepted Answer

A) time necessary to collect a credit sale. 
B) number of customers per day who charge their purchases. 
C) time for a credit customer to return to make a second purchase. 
D) number of times a credit customer charges a purchase during a year. 
E) number of items purchased in each credit transaction. 
A) time necessary to collect a credit sale. 
B) number of customers per day who charge their purchases. 
C) time for a credit customer to return to make a second purchase. 
D) number of times a credit customer charges a purchase during a year. 
E) number of items purchased in each credit transaction.

Question 8

Which one of the following statements is false?

Accepted Answer

A) An aging schedule includes only overdue accounts. 
B) Aging schedules are used to monitor accounts receivable. 
C) If sales are seasonal,the percentages shown on an aging schedule will vary during the year. 
D) Collection efforts may involve legal action. 
E) Investments in accounts receivable equal average daily sales times average collection period. 
A) An aging schedule includes only overdue accounts. 
B) Aging schedules are used to monitor accounts receivable. 
C) If sales are seasonal,the percentages shown on an aging schedule will vary during the year. 
D) Collection efforts may involve legal action. 
E) Investments in accounts receivable equal average daily sales times average collection period.

Question 9

Crocket Motors has an account receivable balance of $682,400 and the average collection period is 38 days.What are the firm's credit sales per day?

Accepted Answer

A) $17,957.89 
B) $23,333.33 
C) $71,044.38 
D) $259,312.00 
E) $236,408.11 
A) $17,957.89 
B) $23,333.33 
C) $71,044.38 
D) $259,312.00 
E) $236,408.11

Question 10

Underwood United has been approached by a new customer who has asked the firm to extend credit for 30 days on a one-time purchase of $499.The firm's required return on receivables is 1.8 percent per month and the variable cost of the desired item is $327.What is the NPV of granting credit if the firm estimates the probability of default is 15 percent?

Accepted Answer

A) $62.93 
B) $108.40 
C) $89.65 
D) $94.15 
E) $76.67 
A) $62.93 
B) $108.40 
C) $89.65 
D) $94.15 
E) $76.67

Question 11

Which one of these statements is true regarding promissory notes?

Accepted Answer

A) Most trade credit arrangements use promissory notes. 
B) Promissory notes are used when firms do not anticipate a problem with collections. 
C) Promissory notes usually involve no cash discount. 
D) A promissory note must be signed and delivered prior to goods being shipped. 
E) Promissory notes are used for small orders only. 
A) Most trade credit arrangements use promissory notes. 
B) Promissory notes are used when firms do not anticipate a problem with collections. 
C) Promissory notes usually involve no cash discount. 
D) A promissory note must be signed and delivered prior to goods being shipped. 
E) Promissory notes are used for small orders only.

Question 12

Which one of the following statements is false?

Accepted Answer

A) Commercial drafts represent a way to obtain a credit commitment from a customer before the goods are delivered. 
B) When a banker's acceptance is discounted in the secondary market it becomes a commercial note. 
C) Sight drafts require immediate payment. 
D) Banker's acceptances arise when a bank guarantees payment on a commercial draft. 
E) A commercial draft becomes a trade acceptance once the buyer accepts the draft and promises to pay. 
A) Commercial drafts represent a way to obtain a credit commitment from a customer before the goods are delivered. 
B) When a banker's acceptance is discounted in the secondary market it becomes a commercial note. 
C) Sight drafts require immediate payment. 
D) Banker's acceptances arise when a bank guarantees payment on a commercial draft. 
E) A commercial draft becomes a trade acceptance once the buyer accepts the draft and promises to pay.

Question 13

One key reason for establishing a captive finance company is the:

Accepted Answer

A) reduction of legal restrictions on the amount of debt that can be incurred. 
B) increased opportunities for internal sales. 
C) lower level of required financial insurance. 
D) anticipated decrease in accounts receivable. 
E) expected decrease in the cost of the debt required to finance receivables. 
A) reduction of legal restrictions on the amount of debt that can be incurred. 
B) increased opportunities for internal sales. 
C) lower level of required financial insurance. 
D) anticipated decrease in accounts receivable. 
E) expected decrease in the cost of the debt required to finance receivables.

Question 14

There are generally considered to be five key factors that should be evaluated when trying to determine if a customer will pay.Write five questions that a credit manager should answer when reviewing a credit application that would address these factors.

Accepted Answer

Here is one set of sample questions: ∙ C

Question 15

Fried Onions has total annual sales of 438,000 units,a carrying cost per unit of $2.67 per year,and restocking costs of $48 per order.What is the EOQ?

Accepted Answer

A) 4,203 units 
B) 3,824 units 
C) 3,968 units 
D) 4,126 units 
E) 4,511 units 
A) 4,203 units 
B) 3,824 units 
C) 3,968 units 
D) 4,126 units 
E) 4,511 units

Question 16

The minimum level of inventory that a firm wants to keep on hand at all times is referred to as:

Accepted Answer

A) the base level. 
B) safety stock. 
C) the opportunity cost. 
D) the reorder point. 
E) keiretsu. 
A) the base level. 
B) safety stock. 
C) the opportunity cost. 
D) the reorder point. 
E) keiretsu.

Question 17

Explain the purpose of a safety stock and how this relates to reorder points.

Accepted Answer

Safety stock is the term used for the mi

Question 18

Identify several factors that affect the length of the credit period and provide an explanation of each.

Accepted Answer

The length of the credit period is affec

Question 19

If 34 percent of customers pay on Day 10 and the remainder pay in an average of 28 days,what is the average collection period?

Accepted Answer

A) 19.72 days 
B) 20.08 days 
C) 21.88 days 
D) 18.47 days 
E) 22.09 days 
A) 19.72 days 
B) 20.08 days 
C) 21.88 days 
D) 18.47 days 
E) 22.09 days

Question 20

Which one of these statements is correct?

Accepted Answer

A) Finished goods are classified as a commodity. 
B) Work-in-progress may have less resell value than the individual component parts did. 
C) Raw materials that are considered to be a commodity are generally illiquid. 
D) Raw materials consist of only those goods that are found in nature. 
E) Finished goods are highly liquid because they are completed. 
A) Finished goods are classified as a commodity. 
B) Work-in-progress may have less resell value than the individual component parts did. 
C) Raw materials that are considered to be a commodity are generally illiquid. 
D) Raw materials consist of only those goods that are found in nature. 
E) Finished goods are highly liquid because they are completed.

Exam 28: Credit and Inventory Management

For a JIT inventory system to be efficient,the:

Sisler's sells 382,000 units a year and orders 10,000 units at a time.The cost of placing an order is $24.90.What is the firm's annual total restocking cost?

The credit period begins on the:

Cash discounts:

Which one of the following statements is false as it relates to considerations firms use when establishing a credit policy?

The average collection period measures the average:

Which one of the following statements is false?

Crocket Motors has an account receivable balance of $682,400 and the average collection period is 38 days.What are the firm's credit sales per day?

Which one of these statements is true regarding promissory notes?

Which one of the following statements is false?

One key reason for establishing a captive finance company is the:

There are generally considered to be five key factors that should be evaluated when trying to determine if a customer will pay.Write five questions that a credit manager should answer when reviewing a credit application that would address these factors.

Fried Onions has total annual sales of 438,000 units,a carrying cost per unit of $2.67 per year,and restocking costs of $48 per order.What is the EOQ?

The minimum level of inventory that a firm wants to keep on hand at all times is referred to as:

Explain the purpose of a safety stock and how this relates to reorder points.

Identify several factors that affect the length of the credit period and provide an explanation of each.

If 34 percent of customers pay on Day 10 and the remainder pay in an average of 28 days,what is the average collection period?

Which one of these statements is correct?

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements and Cash Flow

Discounted Cash Flow Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, real Options, and Capital Budgeting

Interest Rates and Bond Valuation

Stock Valuation

Lessons From Market History

Return, risk, and the Capital Asset Pricing Model Capm

An Alternative View of Risk and Return: the Arbitrage Pricing Theory

Risk, cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Long-Term Financing

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividends and Other Payouts

Raising Capital

Leasing

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Derivatives and Hedging Risk

Short-Term Finance and Planning

Cash Management

Mergers,acquisitions,and Divestitures

Financial Distress

International Corporate Finance

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