## Fundamentals of Corporate Finance Study Set 23

Business

## Quiz 20 :

Financial Risk Management

Looking for Finance Homework Help?

Q03 Q03 Q03

Town Hardware sells goods on credit with payment due 30 days after purchase.If payment is not received by the 30

^{th}day, the store mails a friendly reminder to the customer.If payment is not received by the 45^{th}day, the store calls the customer and requests payment and also stops offering credit to that customer.These procedures are referred to as the store's:Free

Unlocked

Multiple Choice

C

Q11 Q11 Q11

Roger's Home Appliances offers credit to customers it deems worthy of this privilege.To determine if a customer is worthy, the firm computes a numerical value which is used to estimate the probability that the customer will default if credit is granted to them.The process of computing this numerical value is referred to as:

Free

Unlocked

Multiple Choice

Q12 Q12 Q12

You have recently been hired as an accounting intern for Jefferson Mills.The job that you have been assigned for today is to compile a spreadsheet that has six columns.The column headings are: Invoice #; Customer name; < 30 days; 31-60 days; 61-90 days; > 90 days.You are to list every unpaid invoice by customer name with the amount owed entered into the appropriate column for the number of days between the sale date and today.Once you have completed that, you are to sort the report by customer name and then total the amounts listed in each column.What is this report called?

Free

Unlocked

Multiple Choice

Q14 Q14 Q14

Allison has developed a set of procedures for determining the amount of each raw material that she needs to have in inventory if she is to keep her firm's assembly lines operating efficiently.These procedures are commonly referred to by which one of the following terms?

Free

Unlocked

Multiple Choice

Q26 Q26 Q26

Which two of the following are the key considerations for a seller who is establishing the length of the credit period being offered to a customer?
I)seller's operating cycle
II)customer's operating cycle
III)seller's inventory period
IV)customer's inventory period

Free

Unlocked

Multiple Choice

Q35 Q35 Q35

Which of the following statements correctly reflect the effects of granting credit to customers?
I)Total revenues may increase if both the quantity sold and the price per unit increase when credit is granted.
II)A firm's cash cycle generally increases if credit is granted, all else equal.
III)Both the cost of default and the cost of discounts must be considered before granting credit.
IV)A firm may have to increase its long-term borrowing if it decides to grant credit to its customers.

Free

Unlocked

Multiple Choice

Q36 Q36 Q36

You are considering switching from an all cash credit policy to a net 30 credit policy.You do not expect the switch to affect either your sales quantity or your sales price.Ignoring interest and assuming that every month has 30 days, your net present value of the switch will be equal to:

Free

Unlocked

Multiple Choice

Q63 Q63 Q63

Cape May Products currently sells 650 units a month at a price of $59 a unit.The firm believes it can increase its sales by an additional 125 units if it switches to a net 30 credit policy.The monthly interest rate is 0.35 percent and the variable cost per unit is $38.What is the incremental cash inflow from the proposed credit policy switch?

Free

Unlocked

Multiple Choice

Q64 Q64 Q64

Polly's Home Accents currently sells 320 units a month at a price of $59 a unit.Polly thinks she can increase her sales by an additional 55 units if she switches to a net 30 credit policy.The monthly interest rate is 0.4 percent and the variable cost per unit is $32.What is the net present value of the proposed credit policy switch?

Free

Unlocked

Multiple Choice

Q65 Q65 Q65

Currently, Glasgow Importers sells 280 units a month at a price of $729 a unit.The firm believes it can increase its sales by an additional 40 units if it switches to a net 30 credit policy.The monthly interest rate is 0.5 percent and the variable cost per unit is $480.What is the net present value of the proposed credit policy switch?

Free

Unlocked

Multiple Choice

Q66 Q66 Q66

Currently, The Toy Box sells 465 units a month at an average price of $42 a unit.The company thinks it can increase sales by an additional 130 units a month if it switches to a net 30 credit policy.The monthly interest rate is 0.4 percent and the variable cost per unit is $21.What is the incremental cash inflow of the proposed credit policy switch?

Free

Unlocked

Multiple Choice

Q67 Q67 Q67

Preston Milled Products currently sells a product with a variable cost per unit of $21 and a unit selling price of $40.At the present time, the firm only sells on a cash basis with monthly sales of 2,800 units.The monthly interest rate is 0.5 percent.What is the switch break-even point if the firm switched to a net 30 credit policy? Assume the selling price per unit and the variable costs per unit remain constant.

Free

Unlocked

Multiple Choice

Q68 Q68 Q68

Saucier & Co.currently sells 2,100 units a month for total monthly sales of $86,500.The company is considering replacing its current cash only credit policy with a net 30 policy.The variable cost per unit is $18 and the monthly interest rate is 1.2 percent.What is the switch break-even level of sales? Assume the selling price per unit and the variable costs per unit remain constant.

Free

Unlocked

Multiple Choice

Q69 Q69 Q69

The Cellar Door currently sells 9,620 units a month for total monthly sales of $316,000.The company is considering replacing its current cash only credit policy with a net 30 policy.The variable cost per unit is $15 and the monthly interest rate is 1.5 percent.What is the switch break-even level of sales?

Free

Unlocked

Multiple Choice

Q70 Q70 Q70

You have the opportunity to make a one-time sale if you will give a new customer 30 days to pay.You suspect there is a 10 percent chance this person will never pay you.The sales price of the item the customer wants to buy is $289.Your variable cost on that item is $156 and your monthly interest rate is 1.75 percent.Should you grant credit to this customer? Why or why not?

Free

Unlocked

Multiple Choice

Q71 Q71 Q71

You are considering renting a kiosk in the local mall for a period of three months.Any sale you make will be a one-time sale.There is only a 79 percent chance you will collect payment on a credit sale.The product you want to sell has a variable cost of $3.88 and a sales price of $4.99.The monthly interest rate is 1.5 percent.Should you offer people 30 days to pay? Why or why not?

Free

Unlocked

Multiple Choice

Q72 Q72 Q72

You are trying to attract new customers that you feel could become repeat customers.The average selling price of your products is $69 each with a $41 per unit variable cost.The monthly interest rate is 1.5 percent.Your experience tells you that 8 percent of these customers will never pay their bill.What is the value of a new customer who does not default on his or her bill?

Free

Unlocked

Multiple Choice

Q73 Q73 Q73

You are trying to attract new customers that you feel could become repeat customers.The average price of your product is $619 per unit with a $435 variable cost per unit.The monthly interest rate is 1.8 percent.Your experience tells you that 9 percent of these customers will never pay their bill.Should you offer credit terms of net 30 to attract these potential customers? Why or why not?

Free

Unlocked

Multiple Choice

Q75 Q75 Q75

The best-selling pair of roller skates The Teen Store offers sells for $79.99 a pair.The store consistently sells 5,700 pairs of these roller skates every year.The fixed costs to order more skates is $68 and the carrying costs are $1.95 per pair.What is the economic order quantity?

Free

Unlocked

Multiple Choice

Q76 Q76 Q76

One of the best selling items L.T.Ten offers sells for $9.99 a unit.The variable cost per unit is $6.38 and the carrying cost per unit is $1.12.The firm sells 6,500 of these units each year.The fixed cost to order this item is $75.What is the economic order quantity?

Free

Unlocked

Multiple Choice

Q78 Q78 Q78

Weisbrough United currently has a cash sales only policy.Under this policy, the firm sells 410 units a month at a price of $219 a unit.The variable cost per unit is $140 and the carrying cost per unit is $3.30.The monthly interest rate is 1.3 percent.The firm believes it can increase its sales to 475 units a month if it institutes a net 30 credit policy.What is the net present value of the switch using the one-shot approach?

Free

Unlocked

Multiple Choice

Q79 Q79 Q79

Under the current cash sales only policy Blue Bird, Inc., will sell 215 units a month at a price of $469 each.The variable cost per unit is $305 and the monthly interest rate is 1.7 percent.Based on a recent survey, the firm believes it can sell an additional 36 units per month if it offers a net 30 credit policy.What is the net present value of the switch using the one-shot approach?

Free

Unlocked

Multiple Choice

Q80 Q80 Q80

Under your current cash sales only policy you sell 132 units a month for a total sales value of $9,900.Your variable cost per unit is $44 and your monthly interest rate is 1 percent.Based on a recent survey, you believe that you can sell an additional 25 units per month if you offer a net 30 credit policy.What is the net present value of the proposed switch using the accounts receivable approach?

Free

Unlocked

Multiple Choice

Q81 Q81 Q81

You are currently selling 72 units a month at a price of $210 a unit.Your variable cost of each unit is $130.If you switch from your current cash sales only policy to a net 30 policy you think your sales will increase to a total of 95 units per month.The monthly interest rate is 1.5 percent.What is the net present value of this proposed switch using the accounts receivable approach?

Free

Unlocked

Multiple Choice

Q82 Q82 Q82

Your current sales consist of 32 units per month at a price of $225 a unit.You are weighing the pros and cons of switching to a net 30 credit policy from your current cash only policy.If you decide to switch your credit policy you also plan to increase the sales price to $240 a unit.If you make the switch you do not expect your total monthly sales quantity to change but you do expect a 3 percent default rate.The monthly interest rate is 1.5 percent.What is the net present value of the proposed credit policy switch?

Free

Unlocked

Multiple Choice

Q83 Q83 Q83

Your current sales consist of 45 units per month at a price of $390 a unit.You are weighing the pros and cons of switching to a net 30 credit policy from your current cash only policy.If you decide to switch your credit policy you also plan to increase the sales price to $410 a unit.The monthly interest rate is 1.4 percent.What is the break-even default rate of the proposed switch?

Free

Unlocked

Multiple Choice

Q84 Q84 Q84

The Green Hornet sells earnings forecasts for international securities.Its credit terms are 2/10, net 30.Based on experience, 55 percent of all customers will take the discount.The firm sells 2,700 forecasts every month at a price of $1,100 each.What is the firm's average balance sheet amount in accounts receivable?

Free

Unlocked

Multiple Choice

Q88 Q88 Q88

Keep M Flying is a wholesaler that stocks engine components and test equipment for the commercial aircraft industry.A new customer has placed an order for eight high-bypass turbine engines, which increase fuel economy.The variable cost is $1.7 million per unit, and the credit price is $2.1 million each.Credit is extended for one period.Based on historical experience, payment for about 1 out of every 240 such orders is never collected.The required return is 3.2 percent per period.What is the NPV per unit if this is a one-time order?

Free

Unlocked

Multiple Choice

Q93 Q93 Q93

The Cycle Shoppe has decided to offer credit to its customers during the spring selling season.Sales are expected to be 330 bicycles.The average cost to the shop of a bicycle is $300.The owner knows that only 93 percent of the customers will be able to make their payments.To identify the remaining 7 percent, she is considering subscribing to a credit agency.The initial charge for this service is $540, with an additional charge of $6 per individual report.What is the amount of the net savings from subscribing to the credit agency?

Free

Unlocked

Multiple Choice

Q95 Q95 Q95

Assume all suppliers to a large retail chain offer credit terms of 2/10, net 30.The retail chain consistently takes the 2 percent discount and pays in 60 days.When pressed on the issue, the retail chain tells the suppliers they can either accept the payments as they currently are or lose the business.Is this ethical? How might this impact a small supplier versus a large supplier? Explain.

Free

Unlocked

Essay