Question 1

Character, which is one of the traditional "five Cs" of credit analysis, refers to

Accepted Answer

A) the ability of the applicant to meet its financial obligations (i.e., liquidity and cash flow) 
B) the general economic climate and its effect on the applicant's ability to pay 
C) the financial strength of the applicant (i.e., net worth) 
D) the willingness of the applicant to meet its financial obligations 
A) the ability of the applicant to meet its financial obligations (i.e., liquidity and cash flow) 
B) the general economic climate and its effect on the applicant's ability to pay 
C) the financial strength of the applicant (i.e., net worth) 
D) the willingness of the applicant to meet its financial obligations

Question 2

Examples of credit-related marginal costs are all of the following EXCEPT:

Accepted Answer

A) Advertising costs associated with promoting the company's credit policy. 
B) Opportunity costs associated with supporting a higher level of receivables. 
C) Labor costs associated with checking new credit accounts and collecting receivables. 
D) Bad-debt expenses. 
A) Advertising costs associated with promoting the company's credit policy. 
B) Opportunity costs associated with supporting a higher level of receivables. 
C) Labor costs associated with checking new credit accounts and collecting receivables. 
D) Bad-debt expenses.

Question 3

Haulsee Inc.builds 800,000 golf carts a year and purchases the electronic motors for these carts for $370 each.Ordering costs are $540 and Haulsee's inventory carrying costs average 14% of the inventory value.What is the total inventory costs?

Accepted Answer

A) $565,445 
B) $224,331 
C) $211,555 
D) $21,155,120 
A) $565,445 
B) $224,331 
C) $211,555 
D) $21,155,120

Question 4

Potential losses can occur in the credit evaluation process when

Accepted Answer

A) credit is denied to a credit-worthy customer 
B) the credit decision is delayed too long 
C) credit is denied to a customer who is not credit worthy 
D) credit is denied to a credit-worthy customer and the credit decision is delayed too long 
A) credit is denied to a credit-worthy customer 
B) the credit decision is delayed too long 
C) credit is denied to a customer who is not credit worthy 
D) credit is denied to a credit-worthy customer and the credit decision is delayed too long

Question 5

Traditional discussion of guidelines for examining credit worthiness include "the five Cs of credit." Each of the following is one of the "five Cs" except

Accepted Answer

A) capacity 
B) cooperation 
C) character 
D) conditions 
A) capacity 
B) cooperation 
C) character 
D) conditions

Question 6

What is the optimal length of one inventory cycle for a firm that has an economic order quantity of 750 units, average daily demand of 68 units, and a price of $30 per unit?

Accepted Answer

A) 25 days 
B) 11 days 
C) 2.7 days 
D) 331 days 
A) 25 days 
B) 11 days 
C) 2.7 days 
D) 331 days

Question 7

Bluegrass Distilleries, Inc.refuses to extend credit to any wholesale distributors who have a history of being delinquent in repaying credit extended to them.This policy results in lost sales of $10 million annually.Based on past experience with these types of customers, the firm estimates that the average collection period would be 90 days and that the bad-debt loss ratio would be 6 percent.The firm's variable cost ratio is 0.80, making its profit contribution ratio 0.20.Bluegrass Distilleries' required pretax return (i.e., opportunity cost) on receivables investments is 20 percent.When converting from annual to daily or vice versa, assume there are 365 days per year.If Bluegrass Distilleries extends credit to these (previously delinquent) customers, determine the increase in the investment in receivables.

Accepted Answer

A) $27,397 
B) $2,465,753 
C) $111,111 
D) $125,000 
A) $27,397 
B) $2,465,753 
C) $111,111 
D) $125,000

Question 8

The reorder point is

Accepted Answer

A) the lead time multiplied by the daily usage plus safety stock 
B) the EOQ plus safety stock 
C) the lead time multiplied by the annual usage 
D) a product of daily usage and the lead time 
A) the lead time multiplied by the daily usage plus safety stock 
B) the EOQ plus safety stock 
C) the lead time multiplied by the annual usage 
D) a product of daily usage and the lead time

Question 9

The effect of a change in a firm's credit terms from "net 30" to "2/10, net 30" on its own balance sheet is likely to be

Accepted Answer

A) decreased accounts receivable 
B) increased accounts receivable 
C) decreased accounts payable 
D) increased accounts payable 
A) decreased accounts receivable 
B) increased accounts receivable 
C) decreased accounts payable 
D) increased accounts payable

Question 10

What are the "five Cs of credit" and how are they used?

Accepted Answer

1.Character
1.Capacity
2.Capital
3.Colla

Question 11

Technico manufactures about 800,000 solar calculators per year.The computer chip used in the calculator cost $4.80 each and the cost of placing an order is $65.If the carrying costs are 16%, what is the EOQ for the chips?

Accepted Answer

A) 25,495 
B) 3,162 
C) 8, 229 
D) 11,637 
A) 25,495 
B) 3,162 
C) 8, 229 
D) 11,637

Question 12

Mace Auto Parts Company sells to retail auto supply stores on credit terms of "net 60." Annual credit sales are $300 million (spread evenly throughout the year) and its accounts average 28 days overdue.The firm's variable cost ratio is 0.75 (i.e., variable costs are 75 percent of sales).When converting from annual to daily data or vice versa, assume there are 365 days per year.Determine Mace's average investment in receivables.

Accepted Answer

A) $821,918 
B) $3,409,091 
C) $72,328,767 
D) $82,192 
A) $821,918 
B) $3,409,091 
C) $72,328,767 
D) $82,192

Question 13

A numerical credit scoring system may rate all of the following EXCEPT:

Accepted Answer

A) D & B credit rating 
B) location of the business 
C) financial characteristics of the applicant 
D) current ratio of the applicant 
A) D & B credit rating 
B) location of the business 
C) financial characteristics of the applicant 
D) current ratio of the applicant

Question 14

Tool Mart sells 1,400 electronic water pumps every year.These pumps cost $54.30 each.If annual inventory carrying costs are 12% and the cost of placing an order is $90, what is the optimal ordering frequency?

Accepted Answer

A) 37 days 
B) 32 days 
C) 40 days 
D) 51 days 
A) 37 days 
B) 32 days 
C) 40 days 
D) 51 days

Question 15

Seasonal datings are offered to specific retailers.These retailers:

Accepted Answer

A) Do not have the capacity to make sales without seasonal dating. 
B) Do not have the ability to finance a buildup of inventory in advance of the peak selling period. 
C) Are known to be credit-risky. 
D) Are considered a distributive subsidiary of the parent company 
A) Do not have the capacity to make sales without seasonal dating. 
B) Do not have the ability to finance a buildup of inventory in advance of the peak selling period. 
C) Are known to be credit-risky. 
D) Are considered a distributive subsidiary of the parent company

Question 16

When a company measures its marginal costs and marginal returns it is developing:

Accepted Answer

A) target capital structure 
B) optimal credit extension policy 
C) required rate of return 
D) a financing decision 
A) target capital structure 
B) optimal credit extension policy 
C) required rate of return 
D) a financing decision

Question 17

Which of the following is(are) not related to the extension of credit to customers?

Accepted Answer

A) compensating balances 
B) cash discounts 
C) quantity discounts 
D) compensating balances and quantity discounts 
A) compensating balances 
B) cash discounts 
C) quantity discounts 
D) compensating balances and quantity discounts

Question 18

Cash discounts are offered for which of the following reasons?
I. Speed up collection of accounts receivable
II.Reduce a company’s level of receivables investment and associated costs.

Accepted Answer

A) I only 
B) II only 
C) Both I and II 
D) Neither I nor II 
A) I only 
B) II only 
C) Both I and II 
D) Neither I nor II

Question 19

The primary objective of offering a cash discount is to

Accepted Answer

A) reduce the firm's level of receivables investment 
B) reduce the number of bad checks received from customers 
C) encourage customers to place their orders prior to the peak selling period 
D) avoid just-in-time orders 
A) reduce the firm's level of receivables investment 
B) reduce the number of bad checks received from customers 
C) encourage customers to place their orders prior to the peak selling period 
D) avoid just-in-time orders

Question 20

are useful in monitoring the status and composition of a firm's accounts receivable.

Accepted Answer

A) Numerical credit scoring systems 
B) Aging of accounts schedules 
C) Seasonal datings 
D) Aging of accounts schedules and seasonal datings 
A) Numerical credit scoring systems 
B) Aging of accounts schedules 
C) Seasonal datings 
D) Aging of accounts schedules and seasonal datings

Exam 18: The Management of Accounts Receivable and Inventories

Character, which is one of the traditional "five Cs" of credit analysis, refers to

Examples of credit-related marginal costs are all of the following EXCEPT:

Haulsee Inc.builds 800,000 golf carts a year and purchases the electronic motors for these carts for $370 each.Ordering costs are $540 and Haulsee's inventory carrying costs average 14% of the inventory value.What is the total inventory costs?

Potential losses can occur in the credit evaluation process when

Traditional discussion of guidelines for examining credit worthiness include "the five Cs of credit." Each of the following is one of the "five Cs" except

What is the optimal length of one inventory cycle for a firm that has an economic order quantity of 750 units, average daily demand of 68 units, and a price of $30 per unit?

The reorder point is

The effect of a change in a firm's credit terms from "net 30" to "2/10, net 30" on its own balance sheet is likely to be

What are the "five Cs of credit" and how are they used?

Technico manufactures about 800,000 solar calculators per year.The computer chip used in the calculator cost $4.80 each and the cost of placing an order is $65.If the carrying costs are 16%, what is the EOQ for the chips?

A numerical credit scoring system may rate all of the following EXCEPT:

Tool Mart sells 1,400 electronic water pumps every year.These pumps cost $54.30 each.If annual inventory carrying costs are 12% and the cost of placing an order is $90, what is the optimal ordering frequency?

Seasonal datings are offered to specific retailers.These retailers:

When a company measures its marginal costs and marginal returns it is developing:

Which of the following is(are) not related to the extension of credit to customers?

Cash discounts are offered for which of the following reasons? I. Speed up collection of accounts receivable II.Reduce a company’s level of receivables investment and associated costs.

The primary objective of offering a cash discount is to

are useful in monitoring the status and composition of a firm's accounts receivable.

The Role and Objective of Financial Management

The Domestic and International Financial Marketplace

Evaluation of Financial Performance

Financial Planning and Forecasting

The Time Value of Money

A: The Time Value of Money

Fixed-Income Securities: Characteristics and Valuation

Common Stock: Characteristics, Valuation, and Issuance

Analysis of Risk and Return

Capital Budgeting and Cash Flow Analysis

Capital Budgeting: Decision Criteria and Real Option Considerations

A: Capital Budgeting: Decision Criteria and Real Option Considerations

Capital Budgeting and Risk

The Cost of Capital, Capital Structure, and Dividend Policy

Capital Structure Concepts

Capital Structure Management in Practice

A: Capital Structure Management in Practice

Dividend Policy

Working Capital Management

The Management of Cash and Marketable Securities

Lease and Intermediate-Term Financing

Financing with Derivatives

A: Financing with Derivatives

Risk Management

International Financial Management

Corporate Restructuring

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