FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 20: Financial Risk Management

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 1

Multiple Choice

Review LaterAdd Note

Review Later

The accounts receivable approach to credit policy supports the theory that:

A) a firm's risk of offering credit to a new customer is limited to the variable cost of the sold items.
B) the best credit policy is an all-cash policy.
C) the cost of offering credit to a new customer is the same as the cost of offering credit to an existing customer.
D) foregoing cash discounts is a method of obtaining inexpensive short-term financing.
E) the default risk of a credit policy is the same as the default risk under an all cash-policy if your customers remain the same.

F) None of the above
G) B) and E)

Correct Answer

verified

Show Answer

Question 2

Multiple Choice

Review LaterAdd Note

Review Later

A firm offers terms of 2/9, net 41.What effective annual interest rate does the firm earn when a customer does not take the discount?

A) 18.67 percent
B) 20.45 percent
C) 23.37 percent
D) 25.34 percent
E) 25.92 percent

F) None of the above
G) A) and B)

Correct Answer

verified

Show Answer

Question 3

Multiple Choice

Review LaterAdd Note

On average, your firm sells $38,700 of items on credit each day.The firm's average operating cycle is 49 days and it acquires and sells inventory, on average, every 17 days.What is the average accounts receivable balance?

Today, October 12, Nadine's Fashions purchased $511 worth of merchandise from a supplier.The credit terms are 1/5, net 20.By what day does Nadine's have to make the payment to receive the discount? Note: October has 31 days.

Currently, Glasgow Importers sells 280 units a month at a price of $729 a unit.The firm believes it can increase its sales by an additional 40 units if it switches to a net 30 credit policy.The monthly interest rate is 0.5 percent and the variable cost per unit is $480.What is the net present value of the proposed credit policy switch?

Cape May Products currently sells 650 units a month at a price of $59 a unit.The firm believes it can increase its sales by an additional 125 units if it switches to a net 30 credit policy.The monthly interest rate is 0.35 percent and the variable cost per unit is $38.What is the incremental cash inflow from the proposed credit policy switch?

Assume all suppliers to a large retail chain offer credit terms of 2/10, net 30.The retail chain consistently takes the 2 percent discount and pays in 60 days.When pressed on the issue, the retail chain tells the suppliers they can either accept the payments as they currently are or lose the business.Is this ethical? How might this impact a small supplier versus a large supplier? Explain.

Why might firms forego discounts offered by their suppliers even though it is costly to do so? What steps might a firm pursue to be able to take these discounts?

You have recently been hired as an accounting intern for Jefferson Mills.The job that you have been assigned for today is to compile a spreadsheet that has six columns.The column headings are: Invoice #; Customer name; < 30 days; 31-60 days; 61-90 days; > 90 days.You are to list every unpaid invoice by customer name with the amount owed entered into the appropriate column for the number of days between the sale date and today.Once you have completed that, you are to sort the report by customer name and then total the amounts listed in each column.What is this report called?

At the optimal order quantity size, the:

Phil's Print Shop grants its customers the right to pay for their print jobs within 30 days of the date of service.This 30-day period is referred to as the:

Blackwell Brothers sells men's suits.The store offers a 1 percent discount if payment is received within 10 days.Otherwise, payment is due within 30 days.This credit offering is referred to as the:

Polly's Home Accents currently sells 320 units a month at a price of $59 a unit.Polly thinks she can increase her sales by an additional 55 units if she switches to a net 30 credit policy.The monthly interest rate is 0.4 percent and the variable cost per unit is $32.What is the net present value of the proposed credit policy switch?

Which one of the following inventory items is probably the least liquid?

Scott purchased a shovel, a rake, and a wheelbarrow from The Local Hardware Store yesterday.Today, the store issued a bill for these items and mailed it to Scott.What is the name given to this bill?

Currently, The Toy Box sells 465 units a month at an average price of $42 a unit.The company thinks it can increase sales by an additional 130 units a month if it switches to a net 30 credit policy.The monthly interest rate is 0.4 percent and the variable cost per unit is $21.What is the incremental cash inflow of the proposed credit policy switch?

Saucier & Co.currently sells 2,100 units a month for total monthly sales of $86,500.The company is considering replacing its current cash only credit policy with a net 30 policy.The variable cost per unit is $18 and the monthly interest rate is 1.2 percent.What is the switch break-even level of sales? Assume the selling price per unit and the variable costs per unit remain constant.

The period of time that extends from the day a credit sale is made until the day the bank credits a firm's account with the payment for that sale is known as the _____ period.

Which one of the following statements is correct?

Keep M Flying is a wholesaler that stocks engine components and test equipment for the commercial aircraft industry.A new customer has placed an order for eight high-bypass turbine engines, which increase fuel economy.The variable cost is $1.7 million per unit, and the credit price is $2.1 million each.Credit is extended for one period.Based on historical experience, payment for about 1 out of every 240 such orders is never collected.The required return is 3.2 percent per period.What is the NPV per unit if this is a one-time order?