Reference no: EM131589563
1. Suppose a firm starts using accelerated depreciation instead of straight-line depreciation (so their depreciation expense is higher). What effect would this have on their financial statements?
a. The firm's tax payments would increase.
b. The firm's net income would increase.
c. The firm's Additional Financing Needed would increase
d. The firm's net cash flow would increase.
2. Which statement is TRUE?
a. Cash is one of the 5 Cs of credit.
b. Lockboxes are often used when firms have customers over a large geographic area
c. Paying accounts payable early to take advantage of discounts results in a shorter cash conversion cycle.
d. Under a line of credit, the bank is legally committed to lend the funds
3. Which of the following statements is TRUE?
a. Suppose a firm changes its credit terms from net 30 days (no discounts) to 3/10, net 40, and this change leads to a 5% increase in total sales. We can be virtually certain that the firm’s accounts receivable balance will also increase.
b. If a firm offers lenient credit terms to financially weak customers, this might enable it to report high sales and profits. However, some customers might not pay their bills, end up as bad debts, and thus cause the firm to report lower profits in subsequent periods.
c. A firm with excess capacity and relatively low variable costs would be inclined to restrict the credit terms it offers to customers.
d. A revolving credit agreement is a particular type of line of credit that firms with surplus cash use in order to obtain a higher rate of return on their cash balances.
4. A firm has decided to borrow $500,000 on a 10% add-on basis, payable in 6 end-of-month installments. What would the nominal annual rate on the loan be?
a. 12.7%
b. 14.1%
c. 16.9%
d. 18.3%
5. Which Statement is correct?
a. If a firm factors their accounts receivable with recourse, then they are still liable if their customer doesn’t pay
b. If a firm has a Floating Lien, then they are prohibited from selling their inventory
c. If a firm pledges their Accounts Receivables, then they must remove the accounts from their Balance Sheet
d. A Trust Receipt is used for loans in which there is no collateral
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