Question 1

Collection procedures to be followed is an element of the terms of sale.

Accepted Answer

A) True 
 B)False

Question 2

Provide a definition for terms of sale.

Accepted Answer

Conditions on which ...

Question 3

Also assume that the customer will either pay in 30 days or will default.

What is the NPV of switching?

Accepted Answer

A)   $8,193
B)   $10,134
C)   $13,375
D)   $14,700
E)   $16,537F) All of the above
G) A) and B)

Question 4

Which of the following is the best definition of an invoice.

Accepted Answer

A)   The gap between the interest rate a bank pays on deposits and the rate it charges on loans.
B)   Statistical technique for distinguishing between two samples on the basis of their observed characteristics.
C)   Design for inventory in which parts, raw materials, and other work-in-process are delivered exactly as needed for production. Goal is to minimize inventory.
D)   Bill for goods or services provided by the seller to the purchaser.
E)   The process of quantifying the probability of default when granting consumer credit.F) All of the above
G) A) and C)

Question 5

Which of the following will not be affected by a change in a firm's credit policy?

Accepted Answer

A)   Gross profit.
B)   Inventory.
C)   Cash flows.
D)   Current assets.
E)   Net working capital.F) C) and D)
G) None of the above

Question 6

A ______________ factor of credit policy effects occurs when a firm which institutes a credit policy finds it must bear the cost of some of its customers defaulting on their obligations.

Accepted Answer

A)   Cost.
B)   Cost of debt.
C)   Revenue.
D)   Probability of nonpayment.
E)   Cash discount.F) D) and E)
G) C) and D)

Question 7

Which of the following is a type of inventory shortage cost?

Accepted Answer

A)   Storage and tracking costs.
B)   Insurance and taxes.
C)   Restocking costs.
D)   Losses due to obsolescence.
E)   Opportunity cost of capital invested in inventory.F) B) and E)
G) A) and C)

Question 8

What is the incremental cash flow per year from switching credit policies?

Accepted Answer

A)   $415
B)   $475
C)   $525
D)   $1,225
E)   $1,750F) A) and B)
G) A) and D)

Question 9

Your company currently sells a product with a variable cost per unit of $16 and a unit selling price of $31. At the present time, your company only sells on a cash basis and has monthly sales of 310 units. The monthly interest rate is 2 percent. Your company is considering switching to a net 30 credit policy. What is the switch break-even point?

Accepted Answer

A)   312 units
B)   316 units
C)   320 units
D)   323 units
E)   329 unitsF) A) and E)
G) A) and D)

Question 10

Regardless of the day on which the sale is made, the Propellerhead Software Co. dates the invoice as the 15thof the month. The firm, therefore, must employ ____________ terms.

Accepted Answer

A)   MOM
B)   DOS
C)   ROG
D)   EOM
E)   LOPF) C) and E)
G) B) and D)

Question 11

Under credit terms of 2/10, net 25, customers should:

Accepted Answer

A)   Always pay on the 25thday.
B)   Take the 10 percent discount and pay immediately.
C)   Take the discount and pay on the 2ndday.
D)   Either take the discount or pay on the 25thday.
E)   Both take the discount and pay on the 25thday.F) B) and D)
G) C) and D)

Question 12

At the optimal order quantity size, the:

Accepted Answer

A)   Total cost of holding inventory is fully offset by the restocking costs.
B)   Carrying costs are equal to zero.
C)   Restocking costs are equal to zero.
D)   Total costs equal the carrying costs.
E)   Carrying costs equal the restocking costs.F) C) and D)
G) A) and D)

Question 13

A ___________ factor of credit policy effects occurs when a firm institutes a credit policy and finds it must arrange financing for its increased receivables.

Accepted Answer

A)   Cost.
B)   Cost of debt.
C)   Revenue.
D)   Probability of nonpayment.
E)   Cash discount.F) A) and E)
G) B) and C)

Question 14

A firm has inadequate ____________ if it does not have sufficient assets to pledge in the case of default. As a result it will likely be rejected for credit.

Accepted Answer

A)   Capacity.
B)   Character.
C)   Capital.
D)   Collateral.
E)   economic conditionsF) A) and D)
G) B) and E)

Question 15

Alfred Industries currently sells for cash only. Under this policy, Alfred sells 200 units a month at a price of $29 each. The variable cost is $16 per unit. The company is considering changing to a net 30 credit policy in which case they expect sales to increase to 275 units a month while maintaining the current market price. The required rate of return is 1.5% monthly. What is the present value of the benefit derived from switching the credit policy?

Accepted Answer

A)   $65,000
B)   $78,000
C)   $85,000
D)   $130,000
E)   $145,000F) A) and E)
G) All of the above

Question 16

You are trying to attract new customers that you feel could become repeat customers. The average price of the items you sell is $49 with a $35 variable cost. Your monthly interest rate is 1.2 percent. Your experience tells you that 5 percent of these customers will never pay their bill. What would be the net present value of this decision?

Accepted Answer

A)   $979
B)   $989
C)   $1,023
D)   $1,073
E)   $1,108F) B) and E)
G) C) and E)

Question 17

When ABC Co. makes a sale of inventory on credit to XYZ Co., then a receivable is created for ABC

and XYZ's inventory is increased.

Accepted Answer

A) True 
 B)False

Question 18

Your firm currently sells 130 units a month at a price of $210 a unit. You think you can increase your sales by an additional 50 units if you switch to a net 30 credit policy. The monthly interest rate is.6 percent and your variable cost per unit is $125. What is the net present value of the proposed credit policy switch?

Accepted Answer

A)   $651,989
B)   $652,008
C)   $666,667
D)   $674,783
E)   $675,020F) A) and B)
G) B) and C)

Question 19

The bill for goods and services provided by the seller to the purchaser is called a(n) :

Accepted Answer

A)   Ledger statement.
B)   Warranty.
C)   Indenture.
D)   Indemnity statement.
E)   Invoice.F) None of the above
G) A) and B)

Question 20

Quidi Vidi Co. has 325 motors in its inventory at the start of the week. It will use all of these in its weekly production runs and then resupply its inventory for the next week. The carrying cost per motor is $84.26. The fixed cost per order is $63. The variable cost per motor is $122.

What is the economic order quantity of motors?

Accepted Answer

A)   147
B)   159
C)   161
D)   166
E)   168F) B) and E)
G) B) and D)

Exam 20: Credit and Inventory Management

Which of the following will not be affected by a change in a firm's credit policy?

Correct Answer
verified

Correct Answer
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A ______________ factor of credit policy effects occurs when a firm which institutes a credit policy finds it must bear the cost of some of its customers defaulting on their obligations.

Correct Answer
verified

Correct Answer
verified

The bill for goods and services provided by the seller to the purchaser is called a(n) :

Correct Answer
verified

Which of the following is a type of inventory shortage cost?

Correct Answer
verified

When ABC Co. makes a sale of inventory on credit to XYZ Co., then a receivable is created for ABC and XYZ's inventory is increased.

Correct Answer
verified

Correct Answer
verified

Which of the following is the best definition of an invoice.

Correct Answer
verified

Collection procedures to be followed is an element of the terms of sale.

Correct Answer
verified

At the optimal order quantity size, the:

Correct Answer
verified

What is the incremental cash flow per year from switching credit policies?

Correct Answer
verified

A ___________ factor of credit policy effects occurs when a firm institutes a credit policy and finds it must arrange financing for its increased receivables.

Correct Answer
verified

Under credit terms of 2/10, net 25, customers should:

Correct Answer
verified

Regardless of the day on which the sale is made, the Propellerhead Software Co. dates the invoice as the 15^thof the month. The firm, therefore, must employ ____________ terms.

Correct Answer
verified

Provide a definition for terms of sale.

Correct Answer
verified
Conditions on which ...
View Answer

A firm has inadequate ____________ if it does not have sufficient assets to pledge in the case of default. As a result it will likely be rejected for credit.

Correct Answer
verified

Also assume that the customer will either pay in 30 days or will default. What is the NPV of switching?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Exam 20: Credit and Inventory Management

Which of the following will not be affected by a change in a firm's credit policy?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A ______________ factor of credit policy effects occurs when a firm which institutes a credit policy finds it must bear the cost of some of its customers defaulting on their obligations.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The bill for goods and services provided by the seller to the purchaser is called a(n) :

Correct AnswerverifiedShow Answer

Which of the following is a type of inventory shortage cost?

Correct AnswerverifiedShow Answer

When ABC Co. makes a sale of inventory on credit to XYZ Co., then a receivable is created for ABC and XYZ's inventory is increased.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is the best definition of an invoice.

Correct AnswerverifiedShow Answer

Collection procedures to be followed is an element of the terms of sale.

Correct AnswerverifiedShow Answer

At the optimal order quantity size, the:

Correct AnswerverifiedShow Answer

What is the incremental cash flow per year from switching credit policies?

Correct AnswerverifiedShow Answer

A ___________ factor of credit policy effects occurs when a firm institutes a credit policy and finds it must arrange financing for its increased receivables.

Correct AnswerverifiedShow Answer

Under credit terms of 2/10, net 25, customers should:

Correct AnswerverifiedShow Answer

Regardless of the day on which the sale is made, the Propellerhead Software Co. dates the invoice as the 15thof the month. The firm, therefore, must employ ____________ terms.

Correct AnswerverifiedShow Answer

Provide a definition for terms of sale.

Correct AnswerverifiedConditions on which ...View AnswerShow Answer

A firm has inadequate ____________ if it does not have sufficient assets to pledge in the case of default. As a result it will likely be rejected for credit.

Correct AnswerverifiedShow Answer

Also assume that the customer will either pay in 30 days or will default. What is the NPV of switching?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Regardless of the day on which the sale is made, the Propellerhead Software Co. dates the invoice as the 15^thof the month. The firm, therefore, must employ ____________ terms.

Correct Answer
verified

Correct Answer
verified
Conditions on which ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified