Chap020 TRẮC NGHIỆM QUẢN TRỊ TÀI CHÍNH BẰNG TIẾNG ANH

The store offers a 1 percent discount if payment is received within 10 days.. Town Hardware sells goods on credit with payment due 30 days afterpurchase.. If payment is not received by t

Chapter 20

Credit and Inventory Management

Multiple Choice Questions

1 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:

2 Jillian was recently hired by a major retail store Her job is to

determine the probability that individual customers will fail to pay fortheir charge sales Jillian's job best relates to which one of the

3 Town Hardware sells goods on credit with payment due 30 days afterpurchase If payment is not received by the 30th day, the store mails

a friendly reminder to the customer If payment is not received by the 45th 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:

4 Phil's Print Shop grants its customers the right to pay for their print jobs within 30 days of the date of service This 30-day period is

5 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?

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

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

A conditions, control, cessation, capital, and

8 Which one of the following is a system for managing

demand-dependent inventories that minimizes the inventory levels of a firm?

9 What is the primary purpose of credit analysis?

A determine the optimal credit

10 The period of time that extends from the day a credit sale is made until the day the bank credits a firm's account with the payment for that sale is known as the _ period

11 Which one of the following factors tends to favor longer credit periods?

13 When evaluating the creditworthiness of a customer, the term character refers to the:

A nature of the cash flows of the customer's

14 The EOQ model is designed to determine how much:

A total inventory a firm needs in any

15 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?

Accounts receivable balance = $38,700 × (49 - 17) = $1,238,400

16 The Winter Store just purchased $48,300 of goods from its supplier with credit terms of 2/10, net 25 What is the discounted price?

Discounted price = $48,300 × (1 - 0.02) = $47,334

17 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

Break-even point = Q′ - 2,800 = ($40 × 2,800)/{[($40 - $21)/0.005] -

$21} = 30 units

Q′ = 2,800 + 30 = 2,830 units

18 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?

PV = ($69 - $41)/0.015 = $1,867

19 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?

NPV = -$435 + {[1 - 0.09] × [($619 - $435)/0.018]} = $8,867

20 A firm offers terms of 2/9, net 41 What effective annual interest rate does the firm earn when a customer does not take the discount?

EAR = [1 + (0.02/0.98)]365/(41 - 9) - 1 = 25.92 percent

21 Music City, Inc has an average collection period of 62 days Its average daily investment in receivables is $50,000 What are the annual credit sales?

Annual credit sales = $50,000 (365/62) = $294,355

22 The Turn It Up Corporation sells on credit terms of net 30 Its

accounts are, on average, 6 days past due Annual credit sales are $7million What is the company's balance sheet amount in accounts receivable?

A/R = $7,000,000 [(30 + 6)/365] = $690,411

23 Roger's Store begins each week with 150 phasers in stock This stock

is depleted each week and reordered The carrying cost per phaser is

$48 per year and the fixed order cost is $70 What is the optimal number of orders that should be placed each year?

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?

Net savings = (330 × $300 × 0.07) - $540 - (330 × $6) = $4,410

25 Which do you feel is the more appropriate upper limit for the credit period that a seller offers to a buyer: the buyer's operating cycle or the buyer's inventory period?

The operating cycle is the sum of the inventory and accounts

receivable periods The inventory period is probably the better target

as an upper limit for the seller's credit period since it is questionable whether or not the seller should be financing the buyer's receivables.The credit period should definitely not exceed the buyer's operating period as the seller would then be financing all of the buyer's

inventory and accounts receivables, plus other aspects of the buyer'soperations

Feedback: Refer to section 20.2