59.
The purpose of credit analysis is to:
60.
Which one of the following would not be a customary source of credit information on customers?
61.
The five Cs of credit refer to the:
62.
In field warehousing the inventory is held by the:
63.
In general, a firm’s credit policy should grant credit whenever the expected:
64.
If the probability of collection is 65%, should you grant credit to a customer wishing to purchase a $2,000 item that cost
$1,333.33 to produce? Assume all cash flows are discounted to present value and there is no chance of subsequent sales.
65.
What is the break-even probability in the following case? A customer wishes to purchase a $2,000 item that has been marked
up to 50% over cost. Assume all cash flows are discounted to present value and there is no chance of subsequent sales.
66.
What is the minimum probability of collection that should be accepted by firms that have a 25% profit margin? Ignore the
time value of money and assume that there is no chance of subsequence sales.
67.
Which of the following would be more likely to justify granting credit?
68.
Why should the possibility of a repeat order increase a firm’s willingness to grant credit?
69.
A revolving line of credit is:
70.
A break-down of accounts receivable according to the length of time outstanding is known as a(n):
71.
Check conversion is the process of:
72.
Which type of inventory would a bank be most willing to accept as security for a loan?
73.
A primary purpose of restricting the investment of idle cash balances to money market instruments is to:
74.
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?
75.
The longer the firm’s accounts payable period, the:
76.
Commercial paper is unsecured. Therefore, the companies that issue this short-term security:
77.
Which one of the following is not a carrying cost to holding inventory?
78.
A firm is considering a one-time sale of $100,000 to a customer. The cost of goods sold for this sale is $90,000. If the
probability of the customer paying is 0.8, what is the expected profit from this transaction?
79.
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?
80.
A firm with ______ profit margin is best situated to extend credit to customers with a high probability of default.
81.
Term loans:
82.
What is the annual gain to a firm with daily sales of $30,000 if it can speed up collections by 3 days, assuming an annual
opportunity cost of funds of 8%?
83.
Which one of these is not a characteristic of a concentration system of collections?
84.
The Canine Kennel uses 600 cases of dog food annually and orders 40 cases in each shipment. The annual carrying cost per
case is $5 and the economic order quantity is 25 cases. Which one of these statements best applies to this situation?
85.
The Automated Clearing House (ACH)
86.
Potential savings from a lock-box system will be reduced by:
87.
Which one of the following conditions would make a lock–box system potentially more attractive to a firm?
88.
How much money can be saved annually by setting up a lock-box system that will process 500 checks per day at a cost of
$0.15 per check if each check averages $220, collection float is reduced by 3 days, and the annual interest rate is 8%? (Use a
365-day year.)
89.
Which one of the following is not an inventory carrying cost?
90.
A 6-month Treasury bill sells at a discount of 5%. What is the effective annual interest rate?
91.
If the marginal order cost exceeds the marginal carrying cost of inventory, then the firm:
92.
Assume a firm can either hold cash paying no interest or invest in marketable securities. Which one of the following might
induce the manager to hold higher cash balances today?
93.
Which of the following is not a money market instrument?
94.
Which one of the following statements is true of repurchase agreements?
95.
Which of the following statements is false?
96.
How much value would be added to a firm that could permanently reduce its cash collection period by 2 days if daily
collections average $10,000 and the opportunity cost is 5% annually?
97.
Which of the following is not an advantage of wire transfer systems?
Chapter 20 Test bank – Static Summary
Category
# of Questions
AACSB: Analytical Thinking
23
AACSB: Communication
23
AACSB: Reflective Thinking
51
Accessibility: Keyboard Navigation
97
Blooms: Analyze
21
Blooms: Apply
22
Blooms: Remember
23
Blooms: Understand
31
Difficulty: 1 Easy
64
Difficulty: 2 Medium
29
Difficulty: 3 Hard
4
Gradable: automatic
97
Learning Objective: 20–01 Understand why firms need to invest in working capital.
7
Learning Objective: 20–01 Understand why firms need to invest in working Cash cycle analysis
1
Learning Objective: 20–02 Describe the usual steps in a firm’s credit management policy.
15
Learning Objective: 20–03 Measure the implicit interest rate on credit sales.
7
Learning Objective: 20–04 Describe how firms assess the probability that a customer will pay its bills.
8
Learning Objective: 20–05 Understand when it makes sense to grant credit to Credit policy customers.
1
Learning Objective: 20–05 Understand when it makes sense to grant credit to customers.
17
Learning Objective: 20–06 Cite the costs and benefits of holding inventories.
8
Learning Objective: 20–07 Compare alternatives for investing excess funds over short horizons.
1
Learning Objective: 20–07 Compare the different techniques that firms use to make and receive payments.
17
Learning Objective: 20–08 Compare alternatives for investing idle cash and interpret interest rates in the money market.
15
Learning Objective: 20–09 Understand the principal sources of short-term loans.
1
Topic: Cash collections management
9
Topic: Cash cycle
5
Topic: Cash management general
2
Topic: Cash management processes
5
Topic: Collection policy
4
Topic: Cost of credit
2
Topic: Costs of credit
4
Topic: Credit analysis
12
Topic: Credit instruments
6
Topic: Credit policy
16
Topic: Credit terms
9
Topic: Economic order quantity (EOQ) model
4
Topic: Float costs and management
1
Topic: Inventory costs
2
Topic: Inventory management.
8
Topic: Money market securities
9
Topic: Working capital requirements
2