Question 1

CJ Stores has current cash-only sales of 218 units per month at a price of $236.55 a unit. If it switches to a net 30 credit policy, the credit sales price will be $249 while the cash price will remain at $236.55. The switch is not expected to affect the sales quantity but a 3 percent default rate is expected. The monthly interest rate is 1.4 percent. What is the net present value of the proposed credit policy switch?

Accepted Answer

A)   $24,727
B)   $26,893
C)   $27,965
D)   $25,978
E)   $29,481F) B) and E)
G) None of the above

Question 2

Assume that RSF is a wholly owned subsidiary of the Rolled Steel Company. RSF provides credit financing solely for large ticket items purchased from the Rolled Steel Company. Which one of the following terms describes RSF?

Accepted Answer

A)   Credit department
B)   Parent company
C)   Captive finance company
D)   Credit union
E)   Service unitF) A) and C)
G) C) and E)

Question 3

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?

Accepted Answer

A)   Ledger statement
B)   Warranty
C)   Indenture
D)   Receipt
E)   InvoiceF) A) and E)
G) All of the above

Question 4

The Cellar Door currently sells 1,849 units a month for total monthly sales of $627,800. The company is considering replacing its current cash only credit policy with a net 30 policy. The variable cost per unit is $214 and the monthly interest rate is .87 percent. What is the new sales quantity at the switch break-even level of sales?

Accepted Answer

A)   1,711 units
B)   1,779 units
C)   1,814 units
D)   1,957 units
E)   1,893 unitsF) None of the above
G) D) and E)

Question 5

Under credit terms of 1/5, net 15, customers should:

Accepted Answer

A)   Always pay on the 15th day.
B)   take the discount and pay immediately.
C)   take the discount and pay on the day following the day of sale.
D)   either take the discount or pay on the 15th day.
E)   both take the discount and pay on the 15th day.F) A) and D)
G) B) and E)

Question 6

Music City has an average collection period of 34.6 days and an average daily investment in receivables of $71,407. What are the annual credit sales given a 365-day year?

Accepted Answer

A)   $668,407
B)   $577,109
C)   $753,282
D)   $625,893
E)   $767,123F) All of the above
G) B) and E)

Question 7

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

Accepted Answer

A)   A custom made set of kitchen cabinets
B)   Metal cabinets for dishwashers
C)   Wheat stored in a grain silo
D)   A customized drill press
E)   A partially built modular homeF) A) and B)
G) All of the above

Question 8

A just-in-time inventory system:

Accepted Answer

A)   eliminates all inventory costs.
B)   reduces the inventory turnover rate.
C)   averages long-term inventory needs.
D)   focuses on immediate production needs.
E)   maximizes inventory costs.F) B) and E)
G) D) and E)

Question 9

A conditional sales contract:

Accepted Answer

A)   passes title to the goods sold to the buyer at the time the contract is signed.
B)   normally calls for one lump sum payment on the contract payment date.
C)   allows the seller to retain ownership of the goods sold until the customer has fully paid for the purchase.
D)   is payable immediately upon receipt.
E)   is a formal bid for a project.F) B) and E)
G) B) and C)

Question 10

Turner's offers credit terms of net 30 with payments received an average of 2.8 days past their due date. Annual credit sales are $2.38 million. What is the average book value of accounts receivable? Assume a 365-day year.

Accepted Answer

A)   $213,874
B)   $223,333
C)   $211,667
D)   $215,407
E)   $223,593F) C) and D)
G) B) and E)

Question 11

Which one of the following statements is correct?

Accepted Answer

A)   The credit period begins when the discount period ends.
B)   The discount period is the length of time granted to a customer to pay for a purchase.
C)   The credit period begins on the invoice date.
D)   With terms of 2/10, net 30, the net credit period is 20 days.
E)   With EOM dating, all sales are assumed to have occurred on the 15ᵗʰ of each month.F) A) and C)
G) D) and E)

Question 12

Assume all sales are one-time credit sales with a probability of collection of 96 percent. The variable cost per unit is $1.67, the sales price per unit is $4.99, and the monthly interest rate is 1.35 percent. What is the NPV of a credit sale of one item?

Accepted Answer

A)   $3.18
B)   $2.87
C)   $3.38
D)   $2.92
E)   $3.06F) A) and C)
G) None of the above

Question 13

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) A) and B)
G) B) and E)

Question 14

Assume you put your purchases on your credit card and then take advantage of any cash discounts offered. Which one of these credit terms do you prefer?

Accepted Answer

A)   1/10, net 20
B)   2/5, net 30
C)   2/10, net 30
D)   1/15, net 45
E)   2/15, net 30F) A) and B)
G) B) and E)

Question 15

Which one of these statements is correct?

Accepted Answer

A)   A firm's cash cycle generally decreases when it switches from a cash to a credit policy, all else equal.
B)   Most customers will forgo the discount and pay at the end of the credit period.
C)   Total revenues generally decrease if both the quantity sold and the price per unit increase when credit is granted.
D)   Only the cost of default should be considered before granting credit.
E)   A firm may have to increase its long-term borrowing if it decides to grant credit to its customers.F) A) and B)
G) C) and D)

Question 16

A firm's total investment in accounts receivables depends primarily on the firm's:

Accepted Answer

A)   total sales and cash discount period.
B)   cash to credit sales ratio.
C)   bad debt ratio.
D)   average collection period and amount of credit sales.
E)   amount of credit sales and cash discount percentage.F) B) and D)
G) A) and C)

Question 17

Which one of the following statements related to credit periods is correct?

Accepted Answer

A)   Longer credit periods are granted for sales of perishable items.
B)   Inexpensive goods tend to have longer credit periods.
C)   Smaller accounts tend to have longer credit periods.
D)   Sellers may offer different credit periods to different customers.
E)   Newer products tend to have shorter credit periods.F) All of the above
G) B) and C)

Question 18

Currently, Tanner's sells 69 units a month at an average price of $499 a unit. The company thinks it can increase sales by an additional 32 units a month if it switches to a net 30 credit policy. The monthly interest rate is .48 percent and the variable cost per unit is $216. What is the incremental cash inflow of the proposed credit policy switch?

Accepted Answer

A)   $10,120
B)   $9,056
C)   $12,760
D)   $17,810
E)   $15,968F) B) and C)
G) A) and D)

Question 19

A firm offers credit terms of 2/15, net 45. What effective annual interest rate does the firm earn when a customer forgoes the discount?

Accepted Answer

A)   18.67 percent
B)   20.45 percent
C)   23.37 percent
D)   25.34 percent
E)   27.86 percentF) A) and D)
G) A) and C)

Question 20

When credit policy is at the optimal point, the:

Accepted Answer

A)   total costs of granting credit will be maximized.
B)   carrying costs of credit will be equal to zero.
C)   opportunity cost of credit will be equal to zero.
D)   carrying costs will equal the opportunity costs.
E)   total costs will equal the opportunity costs.F) A) and B)
G) A) and E)

Exam 20: Credit and Inventory Management

Assume you put your purchases on your credit card and then take advantage of any cash discounts offered. Which one of these credit terms do you prefer?

Correct Answer
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Which one of these statements is correct?

Correct Answer
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Turner's offers credit terms of net 30 with payments received an average of 2.8 days past their due date. Annual credit sales are $2.38 million. What is the average book value of accounts receivable? Assume a 365-day year.

Correct Answer
verified

Music City has an average collection period of 34.6 days and an average daily investment in receivables of $71,407. What are the annual credit sales given a 365-day year?

Correct Answer
verified

Correct Answer
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Which one of the following inventory items is probably the most liquid?

Correct Answer
verified

A conditional sales contract:

Correct Answer
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Assume that RSF is a wholly owned subsidiary of the Rolled Steel Company. RSF provides credit financing solely for large ticket items purchased from the Rolled Steel Company. Which one of the following terms describes RSF?

Correct Answer
verified

Which one of the following statements related to credit periods is correct?

Correct Answer
verified

A just-in-time inventory system:

Correct Answer
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Under credit terms of 1/5, net 15, customers should:

Correct Answer
verified

When credit policy is at the optimal point, the:

Correct Answer
verified

A firm offers credit terms of 2/15, net 45. What effective annual interest rate does the firm earn when a customer forgoes the discount?

Correct Answer
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Correct Answer
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Correct Answer
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Which one of the following statements is correct?

Correct Answer
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A firm's total investment in accounts receivables depends primarily on the firm's:

Correct Answer
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Assume all sales are one-time credit sales with a probability of collection of 96 percent. The variable cost per unit is $1.67, the sales price per unit is $4.99, and the monthly interest rate is 1.35 percent. What is the NPV of a credit sale of one item?

Correct Answer
verified

At the optimal order quantity size, the:

Correct Answer
verified

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?

Correct Answer
verified

Exam 20: Credit and Inventory Management

Assume you put your purchases on your credit card and then take advantage of any cash discounts offered. Which one of these credit terms do you prefer?

Correct AnswerverifiedShow Answer

Which one of these statements is correct?

Correct AnswerverifiedShow Answer

Turner's offers credit terms of net 30 with payments received an average of 2.8 days past their due date. Annual credit sales are $2.38 million. What is the average book value of accounts receivable? Assume a 365-day year.

Correct AnswerverifiedShow Answer

Music City has an average collection period of 34.6 days and an average daily investment in receivables of $71,407. What are the annual credit sales given a 365-day year?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A conditional sales contract:

Correct AnswerverifiedShow Answer

Assume that RSF is a wholly owned subsidiary of the Rolled Steel Company. RSF provides credit financing solely for large ticket items purchased from the Rolled Steel Company. Which one of the following terms describes RSF?

Correct AnswerverifiedShow Answer

Which one of the following statements related to credit periods is correct?

Correct AnswerverifiedShow Answer

A just-in-time inventory system:

Correct AnswerverifiedShow Answer

Under credit terms of 1/5, net 15, customers should:

Correct AnswerverifiedShow Answer

When credit policy is at the optimal point, the:

Correct AnswerverifiedShow Answer

A firm offers credit terms of 2/15, net 45. What effective annual interest rate does the firm earn when a customer forgoes the discount?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which one of the following statements is correct?

Correct AnswerverifiedShow Answer

A firm's total investment in accounts receivables depends primarily on the firm's:

Correct AnswerverifiedShow Answer

Assume all sales are one-time credit sales with a probability of collection of 96 percent. The variable cost per unit is $1.67, the sales price per unit is $4.99, and the monthly interest rate is 1.35 percent. What is the NPV of a credit sale of one item?

Correct AnswerverifiedShow Answer

At the optimal order quantity size, the:

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

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