Question 1

A break-down of accounts receivable according to the length of time outstanding is known as a(n):

Accepted Answer

A)  amortization schedule. 
B)  sources of cash flow statement. 
C)  receivables inventory. 
D) aging schedule.

Question 2

If the marginal order costs exceeds the marginal carrying cost of inventory, then the firm:

Accepted Answer

A)  has minimized its total carrying costs. 
B)  should increase its order size. 
C)  should decrease its order size. 
D) has maximized its order costs.

Question 3

What are the expected annual savings from a lock-box system that collects 150 checks per day averaging $500 each, and reduces mailing and processing times by 2.5 and 1.5 days, respectively, if the annual interest rate is 7%?

Accepted Answer

A)  $5,250 
B)  $13,125 
C)  $21,000 
D) $300,000

Question 4

Which one of these statements is correct regarding ratio analysis as a predictor of bankruptcy?

Accepted Answer

A)  As early as four years before they went bankrupt, failing firms were earning a higher return on assets than firms that survived. 
B)  On average, failing firms have a lower ratio of liabilities to assets than surviving firms. 
C)  Failing firms have a lower EBITDA to total liabilities ratio than surviving firms. 
D) Firms with a total debt to total assets ratio of 75% or less tend to survive rather than fail.

Question 5

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

Question 6

Commercial paper is usually used to finance overseas trade.

Accepted Answer

A) True 
 B)False

Question 7

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 8

Following the Z score proposed by Edward Altman, calculate the Z score of a firm with the following financial ratios:
Market value of equity/Total book debt = 0.9
EBIT/Total assets = 0.12
Sales/Total assets = 1.4
Retained earnings/Total assets = 0.4
Working capital/Total assets = 0.12

Accepted Answer

The answer of Following the Z score proposed by Edward...

Question 9

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 credit period?

Accepted Answer

A)  25.63% 
B)  28.19% 
C)  39.25% 
D) 61.15%

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Bank certificates of deposit are the safest and most liquid of all the money market securities.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

The answer of Why will sellers be less reluctant to...

Question 13

The financial manager of a firm does not maintain a ledger balance but refers to the bank balance as it appears online to determine the amount of funds in the firm's checking account. What is the financial manager ignoring?

Accepted Answer

A)  Bank fees 
B)  Direct deposits 
C)  Float 
D) Customer checks returned for insufficient funds

Question 14

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.

Question 15

Fedwire charges a 0.05% fee on all transactions.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

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

Question 17

A $1,200 invoice dated January 1 has credit terms of 3/10, net 30. What amount will the purchaser have to pay on January 4 to have the invoice paid in full at that time?

Accepted Answer

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

Question 18

Discuss the premise behind the validity of a numerical credit scoring system.

Accepted Answer

The answer of Discuss the premise behind the validity of...

Exam 20: Working Capital Management

A break-down of accounts receivable according to the length of time outstanding is known as a(n) :

If the marginal order costs exceeds the marginal carrying cost of inventory, then the firm:

What are the expected annual savings from a lock-box system that collects 150 checks per day averaging $500 each, and reduces mailing and processing times by 2.5 and 1.5 days, respectively, if the annual interest rate is 7%?

Which one of these statements is correct regarding ratio analysis as a predictor of bankruptcy?

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

Commercial paper is usually used to finance overseas trade.

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

Following the Z score proposed by Edward Altman, calculate the Z score of a firm with the following financial ratios: Market value of equity/Total book debt = 0.9 EBIT/Total assets = 0.12 Sales/Total assets = 1.4 Retained earnings/Total assets = 0.4 Working capital/Total assets = 0.12

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 credit period?

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

Bank certificates of deposit are the safest and most liquid of all the money market securities.

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

The financial manager of a firm does not maintain a ledger balance but refers to the bank balance as it appears online to determine the amount of funds in the firm's checking account. What is the financial manager ignoring?

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

Fedwire charges a 0.05% fee on all transactions.

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

A $1,200 invoice dated January 1 has credit terms of 3/10, net 30. What amount will the purchaser have to pay on January 4 to have the invoice paid in full at that time?

Discuss the premise behind the validity of a numerical credit scoring system.