Reference no: EM1310040
Multiple choice questions on Credit standards, accounts receivable
1. As credit standards are tightened, sales are expected to_____________ and the investment in accounts receivable is expected to _____________
a) Increase, increase
b) Increase, decrease
c) Decrease, decrease
d) Decrease, increase
2. The conservative financing strategy is a strategy by which the firm finances at least its seasonal requirements, and possibly some of its permanent requirements, with short-term funds and the balance of its permanent requirements with long-term funds.
a) True
b) False
3. A bank lends a firm $500,000 for one year at 8% and requires compensating balances of 10% of the face value of the loan. Evaluate the effective annual interest rate associated with this loan is
a) 8.9%
b) 8.0%
c) 7.2%
d) 7.0%
4. In the EOQ model, if carrying costs increase, while all other costs remain unchanged, the number of orders placed would be expected to
a) Increase
b) Decrease
c) Remain unchanged
d) Change without regard to carrying costs
5. A firm purchased goods on January 27 with a purchase price of $1,000 and credit terms of 2/10 net 30 EOM. The firm paid for these goods on Feb. 9. The pay ______ for the goods
a) $1,000
b) $980
c) $800
d) 900
6. Factoring accounts receivable is not a form of secured short-term borrowing. It entails the sale of accounts receivable at a discount to obtain needed short-term funds.
a) True
b) False
7. The disposition of the financial manager, marketing manager, and manufacturing manager toward inventory levels is to keep them ______ _________ and _________ respectively.
a) High, low, high
b) Low, high, low
c) Low, high, high
d) High, low, low
8. The cost of borrowing through the sale of commercial paper is typically ______ the prime bank loan rate
a) Lower than
b) The same as
c) Unrelated to
d) Higher than
9. The cash management techniques are aimed at minimizing the firm's financing requirement by taking advantage of certain imperfection in the collection and payment system.
a) True
b) False
10. A firm is considering relaxing credit standards which will result in an increase in annual sales from $3 million to $3.75 million, a decease in the cost of annual sales from $2,225,000 to $2 million, an increase in additional profit contribution from sales of $10,000, and an increase in the average collection period of 15 days, from 20 to 35 days. The bad debt loss is expected to increase from 1% to 1.5% of sales. The firms required return on investments is 15%. The new result of the firm's relaxing its credit standards is
a) $10,000
b) 16,250
c) 26,875
d) 16,875