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Exam 20: Credit and Inventory Managementpart Eight: Topics in Corporate Finance

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Question 31

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Which two of the following are the key elements in determining whether or not a switch from a no-credit policy to a credit policy is advisable? I.variable cost per unit II.cash discount percentage III.credit price IV.default rate

A) I and III only
B) II and IV only
C) II and III only
D) I and IV only
E) III and IV only

F) A) and C)
G) B) and C)

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Question 32

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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?

A) $212,806
B) $231,543
C) $235,479
D) $248,946
E) $251,118

F) B) and D)
G) B) and C)

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Question 33

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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?

A conditional sales contract:

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?

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?

Blackwell Brothers sells men's suits.The store offers a 1 percent discount if payment is received within 10 days.Otherwise,payment is due within 30 days.This credit offering is referred to as the:

Quest,Inc. ,is considering a change in its cash-only sales policy.The new terms of sale would be one month.The required return is 1.6 percent per month.Based on the following information,what is the NPV of the new policy?

The basic factors to be evaluated in the credit evaluation process,the five Cs of credit,are:

Which one of the following statements is correct?

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.

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?

-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?

Geoff Industries offers its credit customers a 2 percent discount if they pay within 10 days.This discount is referred to as a:

A firm sells 4,500 units of an item each year.The carrying cost per unit is $2.15 and the fixed costs per order are $69.What is the economic order quantity?

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?

If you extend credit for a one-time sale to a new customer you risk an amount equal to:

On average,your firm sells $38,700 of items on credit each day.The firm's average operating cycle is 49 days and it acquires and sells inventory,on average,every 17 days.What is the average accounts receivable balance?

Bill is in charge of the inventory for Home Builder's Supply.As an inventory item gets low,he is to restock the item by a quantity that minimizes the total inventory costs for that item.What is this restocking quantity called?

The optimal amount of credit equates the incremental costs of carrying the increase in accounts receivable to the incremental: