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48. Which one of the following statements is typically correct concerning the break-even
probability of collection for repeat sale customers?
49. An aging schedule illustrates the relationship between:
50. Money market securities usually have a maturity of:
51. 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?
52. Which of the following is correct concerning terms of trade credit of 4/10, EOM, net 90?
53. What effective interest rate is charged to a purchaser receiving terms of 5/10, net 90 if
the purchaser avoids the discount and pays in 90 days?
54. Which one of the following changes to the terms of credit would increase the effective
annual rate?
55. Which one of the following is most apt to discourage purchasers from taking a discount?
56. Which one of the following strategies would continue to be effective if a cash-strapped
firm determines that the effective interest rate charged on trade credit is lower than the bank's
interest rate?
57. What is the daily net opportunity cost of holding a cash balance of $2.5 million, if the
daily interest rate is 0.025% and the average transaction cost of investing money overnight is
$50?
58. Which one of the following credit agreements provides the least protection to the seller?
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. Which one of the following financial ratios is
not
used to develop Altman's
Z
score from
multiple discriminant analysis?
63. In general, a firm's credit policy should grant credit whenever the expected:
64. Should credit be granted to a customer wishing to purchase a $2,000 item that has been
marked up 50% over cost if the probability of collection is only 65%? Assume all cash flows are
discounted to present value.
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 50% over cost and the probability of collection is only
65%. Assume all cash flows are discounted to present value.
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.
67. Assuming that a credit decision has been analyzed and credit refused due to a negative
expected profit, which of the following changes, if of sufficient magnitude, might change the
decision to one of approval?
68. Which one of the following assumptions is made when declaring that the break-even
probability of collection is lower for customers with repeat orders?
69. Which one of the following credit decisions appears correct for a customer who intends to
order $1,000 of goods annually that have a 20% profit margin if the probability of default is 20%
and the discount rate is 10%?
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 one of these changes to credit terms of 2/10, net 30 might encourage more
purchasers to take the discount?
73. A primary purpose of restricting the investment of idle cash balances to money market
instruments is to:
74. What is the effective annual rate of trade credit if the credit terms are 1/10, net 30?
75. Which one of the following financial ratios has the highest weight in Altman's
Z
-score
estimation?
76. You are buying goods worth $75,000 from a firm that offers credit terms of 2/10, net 30.
What will be the actual payment needed to pay the account in full on Day 7?
77. Which one of the following statements is correct for a firm that currently has total costs
of carrying and ordering inventory that are 50% higher than total carrying costs?
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. Which one of these statements is correct regarding ratio analysis as a predictor of
bankruptcy?
