Question 1

What is the effective cost of credit terms of 2/10, net 30 if the firm stretches the accounts payable to 45 days?

Accepted Answer

A)   49.76%
B)   36.12%
C)   23.45%
D)   44.59%E) All of the above
F) B) and C)

Question 2

The Holiday Corporation had sales of $450 million this year. Its accounts receivable balance averaged $30 million. How long, on average, does it take the firm to collect on its sales?

Accepted Answer

A)   15.0 days
B)   24.3 days
C)   12.2 days
D)   16.7 daysE) All of the above
F) A) and B)

Question 3

Cromwell Incorporated has the information shown above on its annual Income Statement and Balance Sheet (all numbers shown are in thousands) . What is Cromwell's cash conversion cycle?

Accepted Answer

A)   -41.8 days
B)   -36.1 days
C)   24.3 days
D)   111.6 daysE) A) and D)
F) All of the above

Question 4

A firm offers its customers 3/5 net 25. What is the cost of trade credit to a customer who chooses to pay on day 25?

Accepted Answer

A)   32.3%
B)   65.5%
C)   68.4%
D)   74.3%E) B) and C)
F) None of the above

Question 5

The three steps in establishing a credit policy are establishing credit standards, establishing credit terms, and establishing a collection policy.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is NOT a benefit of holding inventory?

Accepted Answer

A)   minimizes the risk that the firm will not be able to obtain an input it needs for production
B)   seasonality of demand, meaning that customer purchases often do not match the most efficient production cycle, leading to a buildup of inventory in off-peak periods
C)   minimizes order cost from placing multiple orders throughout the year
D)   minimizes risks involved in spoilage and obsolescenceE) A) and C)
F) None of the above

Question 7

Jerome Industries has inventory days of 48, accounts receivable days of 21, and accounts payable days of 30. What is its cash conversion cycle?

Accepted Answer

A)   39 days
B)   57 days
C)   69 days
D)   72 daysE) A) and C)
F) All of the above

Question 8

A firm has the accounts on its books shown above. What percentage of debt has been outstanding for over 60 days?

Accepted Answer

A)   28%
B)   30%
C)   34%
D)   42%E) None of the above
F) A) and D)

Question 9

SwenCorp had sales of $154 million this year and an average accounts receivable of $18 million per day. Its credit terms specify "2/14 net 40." On average, how long does it take to collect on its sales?

Accepted Answer

A)   8.5 days
B)   13 days
C)   28 days
D)   43 daysE) None of the above
F) C) and D)

Question 10

Which of the following money market investments is short-term debt issued by a bank with a minimum denomination of $100,000?

Accepted Answer

A)   Treasury bills
B)   banker's acceptance
C)   repurchase agreement
D)   commercial paper
E)   certificates of depositF) A) and B)
G) None of the above

Question 11

A firm that chooses a low-risk, restrictive credit policy will tend to have a larger investment in receivables.

Accepted Answer

A) True 
 B)False

Question 12

A firm offers its customers 2/14 net 28. What is the cost of trade credit to a customer who chooses to pay on day 28?

Accepted Answer

A)   32.8%
B)   67.3%
C)   69.3%
D)   72.4%E) A) and D)
F) A) and B)

Question 13

Commercial Supply Corp. bills its accounts on terms of 2/10 net 30. The firm's accounts receivable include $200,000 that has been outstanding for ten or fewer days, $126,000 outstanding for 11 to 30 days, $98,000 outstanding for 31 to 40 days, $12,000 outstanding for 41 to 50 days, $20,000 outstanding for 51 to 60 days, and $7,000 outstanding for more than 60 days. Is the aging schedule for Commercial Supply Corp. bottom heavy?

Accepted Answer

A)   No, since 70% of the outstanding sales are on time and the percentage of long term outstanding payments is low.
B)   Yes, since the percentage of payments that are late are greater than the percentage of payments that are on time.
C)   No, since since the percentage of payments that are late are greater than the percentage of payments that are on time.
D)   Given information is not sufficient to reach any conclusion.E) B) and D)
F) B) and C)

Question 14

Which of the following money market investments is a short-term debt obligations of the U.S. government?

Accepted Answer

A)   Treasury bills
B)   repurchase agreement
C)   commercial paper
D)   certificates of deposit
E)   banker's acceptanceF) A) and E)
G) A) and C)

Question 15

What is the meaning of the term 2/10 net 30?

Accepted Answer

A)   If the invoice is paid within 10 days, a 2% discount can be taken. If the invoice is paid between 11 and 29 days, a 1% discount can be taken. After 30 days, the full invoice is due.
B)   If the invoice is paid within 2 days, a 10% discount can be taken; otherwise the full invoice is due in 30 days.
C)   If the invoice is paid within 2 days, a 10% discount can be taken; otherwise a 2% discount can be taken if the invoice is paid in 30 days.
D)   If the invoice is paid within 10 days, a 2% discount can be taken; otherwise the full invoice is due in 30 days.E) A) and C)
F) B) and C)

Question 16

What is a firm's cash cycle?

Accepted Answer

A firm's cash cycle is the len...

Question 17

What is discount period?

Accepted Answer

The discount period ...

Question 18

A firm tries to extend its disbursement float in order to reduce its working capital needs. Which of the following is a risk that may be associated with this strategy, if it is taken too far?

Accepted Answer

A)   may attract a late fee
B)   may be required to pay before delivery for future supplies
C)   may jeopardize the entire relationship with the supplier
D)   all of the aboveE) B) and C)
F) A) and B)

Question 19

Which of the following is NOT a motivation for holding cash?

Accepted Answer

A)   to meet its day-to-day needs
B)   to compensate for the uncertainty associated with cash flows
C)   to satisfy bank requirements
D)   to place in short-term investmentsE) None of the above
F) B) and D)

Question 20

Evertz Metals buys and stockpiles dolomite to use in its smelting processes. Before all this dolomite is used, however, they alter their smelting process so that calcite limestone is used instead. How is the inventory cost of the unused dolomite best categorized?

Accepted Answer

A)   an acquisition cost
B)   a carrying cost
C)   an order cost
D)   a holding costE) B) and C)
F) None of the above

Exam 19: Working Capital Management

A firm tries to extend its disbursement float in order to reduce its working capital needs. Which of the following is a risk that may be associated with this strategy, if it is taken too far?

Correct Answer
verified

A firm offers its customers 2/14 net 28. What is the cost of trade credit to a customer who chooses to pay on day 28?

Correct Answer
verified

Evertz Metals buys and stockpiles dolomite to use in its smelting processes. Before all this dolomite is used, however, they alter their smelting process so that calcite limestone is used instead. How is the inventory cost of the unused dolomite best categorized?

Correct Answer
verified

Which of the following money market investments is a short-term debt obligations of the U.S. government?

Correct Answer
verified

Which of the following is NOT a motivation for holding cash?

Correct Answer
verified

Cromwell Incorporated has the information shown above on its annual Income Statement and Balance Sheet (all numbers shown are in thousands) . What is Cromwell's cash conversion cycle?

Correct Answer
verified

What is a firm's cash cycle?

Correct Answer
verified
A firm's cash cycle is the len...
View Answer

What is the meaning of the term 2/10 net 30?

Correct Answer
verified

Jerome Industries has inventory days of 48, accounts receivable days of 21, and accounts payable days of 30. What is its cash conversion cycle?

Correct Answer
verified

SwenCorp had sales of $154 million this year and an average accounts receivable of $18 million per day. Its credit terms specify "2/14 net 40." On average, how long does it take to collect on its sales?

Correct Answer
verified

A firm has the accounts on its books shown above. What percentage of debt has been outstanding for over 60 days?

Correct Answer
verified

The three steps in establishing a credit policy are establishing credit standards, establishing credit terms, and establishing a collection policy.

Correct Answer
verified

What is the effective cost of credit terms of 2/10, net 30 if the firm stretches the accounts payable to 45 days?

Correct Answer
verified

Which of the following money market investments is short-term debt issued by a bank with a minimum denomination of $100,000?

Correct Answer
verified

Correct Answer
verified

Which of the following is NOT a benefit of holding inventory?

Correct Answer
verified

What is discount period?

Correct Answer
verified
The discount period ...
View Answer

A firm offers its customers 3/5 net 25. What is the cost of trade credit to a customer who chooses to pay on day 25?

Correct Answer
verified

The Holiday Corporation had sales of $450 million this year. Its accounts receivable balance averaged $30 million. How long, on average, does it take the firm to collect on its sales?

Correct Answer
verified

A firm that chooses a low-risk, restrictive credit policy will tend to have a larger investment in receivables.

Correct Answer
verified

Exam 19: Working Capital Management

A firm tries to extend its disbursement float in order to reduce its working capital needs. Which of the following is a risk that may be associated with this strategy, if it is taken too far?

Correct AnswerverifiedShow Answer

A firm offers its customers 2/14 net 28. What is the cost of trade credit to a customer who chooses to pay on day 28?

Correct AnswerverifiedShow Answer

Evertz Metals buys and stockpiles dolomite to use in its smelting processes. Before all this dolomite is used, however, they alter their smelting process so that calcite limestone is used instead. How is the inventory cost of the unused dolomite best categorized?

Correct AnswerverifiedShow Answer

Which of the following money market investments is a short-term debt obligations of the U.S. government?

Correct AnswerverifiedShow Answer

Which of the following is NOT a motivation for holding cash?

Correct AnswerverifiedShow Answer

Cromwell Incorporated has the information shown above on its annual Income Statement and Balance Sheet (all numbers shown are in thousands) . What is Cromwell's cash conversion cycle?

Correct AnswerverifiedShow Answer

What is a firm's cash cycle?

Correct AnswerverifiedA firm's cash cycle is the len...View AnswerShow Answer

What is the meaning of the term 2/10 net 30?

Correct AnswerverifiedShow Answer

Jerome Industries has inventory days of 48, accounts receivable days of 21, and accounts payable days of 30. What is its cash conversion cycle?

Correct AnswerverifiedShow Answer

SwenCorp had sales of $154 million this year and an average accounts receivable of $18 million per day. Its credit terms specify "2/14 net 40." On average, how long does it take to collect on its sales?

Correct AnswerverifiedShow Answer

A firm has the accounts on its books shown above. What percentage of debt has been outstanding for over 60 days?

Correct AnswerverifiedShow Answer

The three steps in establishing a credit policy are establishing credit standards, establishing credit terms, and establishing a collection policy.

Correct AnswerverifiedShow Answer

What is the effective cost of credit terms of 2/10, net 30 if the firm stretches the accounts payable to 45 days?

Correct AnswerverifiedShow Answer

Which of the following money market investments is short-term debt issued by a bank with a minimum denomination of $100,000?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is NOT a benefit of holding inventory?

Correct AnswerverifiedShow Answer

What is discount period?

Correct AnswerverifiedThe discount period ...View AnswerShow Answer

A firm offers its customers 3/5 net 25. What is the cost of trade credit to a customer who chooses to pay on day 25?

Correct AnswerverifiedShow Answer

The Holiday Corporation had sales of $450 million this year. Its accounts receivable balance averaged $30 million. How long, on average, does it take the firm to collect on its sales?

Correct AnswerverifiedShow Answer

A firm that chooses a low-risk, restrictive credit policy will tend to have a larger investment in receivables.

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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A firm's cash cycle is the len...
View 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
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Correct Answer
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Correct Answer
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Correct Answer
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The discount period ...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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