Q&A Hero

Q: You observe that the inflation rate in the United States is .78 percent per year and that T-bills currently yield 2.94 percent annually. Using the approximate international Fisher effect, what do you estimate the inflation rate to be in Australia, if short-term Australian government securities yield 3.53 percent per year? A) 4.22 percent B) 1.37 percent C) 2.24 percent D) 1.87 percent E) .88 percent

Q: Suppose the spot and six-month forward rates on the Norwegian krone are NKr5.94 and NKr6.05 respectively. The annual risk-free rate in the United States is 4.5 percent, and the annual risk-free rate in Norway is 7 percent. What would the six-month forward rate have to be on the Norwegian krone to prevent arbitrage? A) NKr6.0138 B) NKr6.0072 C) NKr6.0103 D) NKr6.0174 E) NKr6.0067

Q: Assume the expected inflation rate in Finland is 3.3 percent compared to 2.4 percent in the U.S. A risk-free asset in the U.S. is yielding 4.3 percent. What approximate real rate of return should you expect on a risk-free Finnish security? A) .9 percent B) 1.9 percent C) 2.1 percent D) 2.5 percent E) 3.4 percent

Q: Suppose the current spot rate for the Norwegian krone is NKr5.5923 while the expected inflation rate in Norway is 2.2 percent compared to 1.8 percent in the U.S. A risk-free asset in the U.S. is yielding 3.4 percent. What approximate real rate of return should you expect on a risk-free Norwegian security? A) 1.2 percent B) 1.6 percent C) 2.0 percent D) .4 percent E) .6 percent

Q: Suppose the current spot rate for the Norwegian krone is NKr5.9433 while the expected inflation rate in Norway is 3.1 percent and 1.7 percent in the U.S. A risk-free asset in the U.S. is yielding 3.2 percent. What risk-free rate of return should you expect on a Norwegian security? A) 5.1 percent B) 4.0 percent C) 4.4 percent D) 5.9 percent E) 4.6 percent

Q: You are expecting a payment of C$100,000 two years from now. The risk-free rate of return is 3.8 percent in the U.S. and 4.1 percent in Canada. The inflation rate is 2 percent in the U.S. and 3 percent in Canada. Suppose the current exchange rate is C$1 = $.9132. How much will the payment two years from now be worth in U.S. dollars? A) $91,870 B) $102,414 C) $108,851 D) $88,202 E) $90,775

Q: You are expecting a payment of NKr450,000 three years from now. The risk-free rate of return is 3 percent in the U.S. and 4 percent in Norway. The inflation rate is 2.5 percent in the U.S. and 3 percent in Norway. Currently, you can buy NKr5.94 for $1. How much will the payment three years from now be worth in U.S. dollars? A) $75,758 B) $73,530 C) $81,511 D) $78,077 E) $69,888

Q: You are considering a project in South Africa which has an initial cost of R385,000. The project is expected to return a one-time payment of R428,900 four years from now. The risk-free rate of return is 3.5 percent in the U.S. and 2.4 percent in South Africa. The inflation rate is 4 percent in the U.S. and 3 percent in South Africa. Currently, you can buy R10.48 for $1. How much will the payment of R428,900 be worth in U.S. dollars four years from now? A) $42,777 B) $40,560 C) $47,251 D) $46,926 E) $44,357

Q: Assume the spot rate on the Canadian dollar is C$1.0926, the risk-free nominal rate in the U.S. is 3.8 percent and 4.1 percent in Canada. Which one of the following four-year forward rates best establishes the approximate interest rate parity condition? A) C$1.1058 B) C$1.1012 C) C$1.0959 D) C$1.0893 E) C$1.0795

Q: Assume the spot rate on the pound is .5920 and the 6-month forward rate is .5929. Also assume interest rate parity holds and the current six-month risk-free rate in the United States is 3.1 percent. What must the six-month risk-free rate be in Great Britain? A) 3.25 percent B) 2.87 percent C) 2.94 percent D) 3.10 percent E) 3.52 percent

Q: Assume the spot rate on the Canadian dollar is C$1.2648, the risk-free nominal rate in the U.S. is 3.3 percent, and the risk-free nominal rate in Canada is 3.8 percent. What one-year forward rate will create interest rate parity? A) C$1.2362 B) C$1.2429 C) C$1.2709 D) C$1.2587 E) C$1.2515

Q: Assume a risk-free asset in the U.S. is currently yielding 4.1 percent, a Canadian risk-free asset is yielding 3.7 percent, and the current spot rate is C$1.2633. What is the approximate three-year forward rate if interest rate parity holds? A) C$1.2482 B) C$1.2684 C) C$1.2541 D) C$1.2785 E) C$1.2582

Q: Assume the spot rate for the British pound currently is .6369 per $1. Also assume the one-year forward rate is .6421 per $1. A risk-free asset in the U.S. is currently earning 3.2 percent. If interest rate parity holds, what rate can you earn on a one-year risk-free British security? A) 4.18 percent B) 4.57 percent C) 3.67 percent D) 4.04 percent E) 4.92 percent

Q: Assume the spot rate for the Japanese yen currently is 102.32 per $1 and the one-year forward rate is 102.69 per $1. A risk-free asset in Japan is currently earning 2.5 percent. If interest rate parity holds, approximately what rate can you earn on a one-year risk-free U.S. security? A) 1.63 percent B) 2.01 percent C) 2.14 percent D) 2.96 percent E) 1.01 percent

Q: Assume the current spot rate is C$1.0875 and the one-year forward rate is C$1.0724. Also assume the nominal risk-free rate in Canada is 3.9 percent while it is 4.1 percent in the U.S. How much additional income can you earn by using covered interest arbitrage as compared to investing $1 in the U.S for one year? A) $.0118 B) $.0126 C) $.0020 D) $.0110 E) $.0087

Q: Assume the current spot rate is C$1.2568 and the one-year forward rate is C$1.2455. Also assume the nominal risk-free rate in Canada is 3.7 percent compared to 4.1 percent in the U.S. Using covered interest arbitrage, how much additional profit can you earn over that which you would earn if you invested $1 in the U.S for one year? A) $.0054 B) $.0042 C) $.0008 D) $.0015 E) $.0061

Q: Assume the spot exchange rate for the Hungarian forint is 267.767 HUF. Also assume the inflation rate in the United States is 1.6 percent per year while it is 3.5 percent in Hungary. What is the expected exchange rate three years from now? A) 252.792 HUF B) 272.855 HUF C) 283.322 HUF D) 262.679 HUF E) 259.406 HUF

Q: Sawyer's currently sells 70 units per month at a price of $412.50 a unit. The firm is considering switching to a 30 day credit policy with a credit sales price of $429.69 a unit and a cash price of $412.50. The monthly interest rate is 1.17 percent. What is the break-even default rate of the proposed switch? A) 2.88 percent B) 3.68 percent C) 3.19 percent D) 2.71 percent E) 3.06 percent

Q: CJ Stores has current cash-only sales of 218 units per month at a price of $236.55 a unit. If it switches to a net 30 credit policy, the credit sales price will be $249 while the cash price will remain at $236.55. The switch is not expected to affect the sales quantity but a 3 percent default rate is expected. The monthly interest rate is 1.4 percent. What is the net present value of the proposed credit policy switch? A) $24,727 B) $26,893 C) $27,965 D) $25,978 E) $29,481

Q: You are currently selling 48 units a month at a price of $199 a unit. Your variable cost of each unit is $87. 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 55 units per month. The monthly interest rate is 1.2 percent. What is the present value of this switch using the accounts receivable approach? A) $55,172 B) $64,829 C) $80,822 D) $76,516 E) $41,520

Q: Under its current cash sales only policy Willard's Co. sells 176 units a month for a total sales value of $11,848. The variable cost per unit is $33 and the monthly interest rate is 1.1 percent. The firm should sell an additional 25 units per month if it offers a net 30 credit policy. What is the present value of the proposed switch using the accounts receivable approach? A) $55,976 B) $65,323 C) $69,081 D) $70,224 E) $73,566

Q: Under its current cash sales only policy, JJ's sells 186 units a month at a price of $330 each. The variable cost per unit is $155 and the monthly interest rate is 1.3 percent. The firm believes it can sell an additional 25 units per month if it offers a net 30 credit policy. What is the present value of the switch using the one-shot approach? A) $312,806 B) $291,543 C) $271,283 D) $288,946 E) $311,118

Q: Weisbrough United currently sells 410 units a month at a price of $249 a unit. The variable cost per unit is $132 and the carrying cost per unit is $3.30. The monthly interest rate is 1.2 percent. The firm believes it can increase its sales to 475 units a month if it switches from its cash only to a net 30 credit policy. What is the present value of the switch using the one-shot approach? A) $455,590 B) $523,080 C) $498,470 D) $502,233 E) $464,902

Q: Each year, CTM sells 450 units of a product at a price of $639 each. The variable cost per unit is $421, the carrying cost per unit is $11.78, and the fixed order cost is $56. What is the economic order quantity? A) 65 units B) 58 units C) 72 units D) 53 units E) 84 units

Q: The Electronics Store begins each week with 60 gadgets in stock. This stock is depleted and reordered weekly. The carrying cost per gadget is $21 per year and the fixed order cost is $45. What is the optimal number of orders that should be placed each year? A) 19 B) 27 C) 23 D) 15 E) 33

Q: Cohen Industrial Products uses 3,600 switch assemblies per week and then reorders another 3,600 units. The annual carrying cost per switch assembly is $9.74, and the fixed order cost is $78. What is the EOQ? A) 1,980 units B) 1,809 units C) 1,732 units D) 2,278 units E) 1,698 units

Q: One of the best-selling items the Corner Store offers sells for $3.99 a unit with a variable cost per unit of $2.88. The carrying cost per unit is $1.07 and the fixed order cost is $42. What is the economic order quantity assuming the store sells 650 units annually? A) 202 units B) 194 units C) 226 units D) 214 units E) 221 units

Q: High Mountain consistently sells 2,400 pairs of $189 skates annually. The fixed order costs is $56 and the carrying costs are $3.85 a pair. What is the economic order quantity? A) 246 pairs B) 215 pairs C) 229 pairs D) 264 pairs E) 248 pairs

Q: Lakeside Market sells 848 units of an item priced at $49 each year. The carrying cost per unit is $2.26 and the fixed costs per order are $46. What is the economic order quantity? A) 192 units B) 221 units C) 197 units D) 186 units E) 163 units

Q: Assume an average selling price of $547 per unit, a variable cost per unit of $339, a monthly interest rate of 1.1 percent, and a default rate of 3.1 percent. What is the NPV of extending credit for 30 days to all who are expected to become repeat customers? A) $17,984 B) $19,787 C) $12,304 D) $18,662 E) $13,609

Q: Assume a sales price of $119 per unit, a $76 per unit variable cost, an average default rate of 3 percent, and a monthly interest rate of 1.25 percent. What is the net present value of a new repeat customer who never defaults on his or her payment? A) $5,733 B) $3,364 C) $2,617 D) $8,817 E) $9,520

Q: Assume all sales are one-time credit sales with a probability of collection of 96 percent. The variable cost per unit is $1.67, the sales price per unit is $4.99, and the monthly interest rate is 1.35 percent. What is the NPV of a credit sale of one item? A) $3.18 B) $2.87 C) $3.38 D) $2.92 E) $3.06

Q: The Cycle Shoppe has decided to offer credit to its customers during the spring selling season. Sales are expected to be 64 bikes with an average cost of $329 each. Four percent of customers are expected to default. To help identify those individuals, the shop is considering subscribing to a credit agency. The initial charge for their services is $250 with an additional charge of $7.50 per individual report. What is the amount of the net savings from subscribing to the credit agency? A) $108 B) $92 C) $84 D) $112 E) $103

Q: You can make a one-time sale if you will grant a new customer 30 days to pay. This customer wants to purchase an item with a sales price of $499 and a variable cost of $287. You estimate the probability of default at 33 percent. The monthly interest rate is .98 percent. Should you grant credit to this customer? Why or why not? A) Yes; because the NPV of the potential sale is $33.05 B) Yes; because the NPV of the potential sale is $44.09 C) Yes; because the NPV of the potential sale is $13.02 D) No; because the NPV of the potential sale is −$13.05 E) No; because the NPV of the potential sale is −$2.65

Q: A new customer has placed an order for a turbine engine that has a variable cost of $1.12 million per unit and a credit sales price of $1.64 million. Credit is extended for one period. Based on historical experience, payment for about 1 out of every 178 such orders is never collected. The required return is 2.1 percent per period. What is the NPV per unit if this is a one-time order? A) $516,407 B) $421,819 C) $477,244 D) $534,290 E) $351,056

Q: The Dilana Corporation is considering a change in its cash-only policy. The new terms would be net one period. The required return is 1.5 percent per period. The firm has current sales of 3,500 units per month at a price of $71 per unit. The new policy is expected to increase sales to 3,550 units at a price of $71 per unit. The cost per unit is constant at $38. What is the incremental cash inflow of the new policy? A) $1,880 B) $1,420 C) $1,500 D) $1,995 E) $1,650

Q: The Cellar Door currently sells 1,849 units a month for total monthly sales of $627,800. The company is considering replacing its current cash only credit policy with a net 30 policy. The variable cost per unit is $214 and the monthly interest rate is .87 percent. What is the new sales quantity at the switch break-even level of sales? A) 1,711 units B) 1,779 units C) 1,814 units D) 1,957 units E) 1,893 units

Q: Saucier Co. currently sells 1,208 units a month for total monthly sales of $209,600. The firm is considering replacing its current cash only credit policy with a net 30 policy. The variable cost per unit is $106 and the monthly interest rate is .71 percent. What is the new sales quantity at the switch break-even level of sales? Assume the selling price per unit and the variable costs per unit remain constant. A) 1,143 units B) 1,267 units C) 1,230 units D) 1,306 units E) 1,148 units

Q: Quest is considering a change in its cash-only sales policy. The new terms of sale would be net one month. The required return is .98 percent per month. Currently, the firm sells 420 units per month at $736 per unit. Under the new policy, the firm expects sales of 475 units also at $736 per unit. The variable cost per unit is $426. What is the NPV of switching? A) $1,228,750 B) $1,407,246 C) $1,335,021 D) $1,238,250 E) $1,056,784

Q: New Products currently sells a product with a variable cost per unit of $23 and a unit selling price of $49. At the present time, the firm only sells on a cash basis with monthly sales of 733 units. The monthly interest rate is .48 percent. What is the value of Q' at the switch break-even point if the firm adopted a net 30 credit policy? Assume the selling price per unit and the variable costs per unit remain constant. A) 739.66 units B) 736.34 units C) 728.47 units D) 740.29 units E) 743.18 units

Q: Currently, Tanner's sells 69 units a month at an average price of $499 a unit. The company thinks it can increase sales by an additional 32 units a month if it switches to a net 30 credit policy. The monthly interest rate is .48 percent and the variable cost per unit is $216. What is the incremental cash inflow of the proposed credit policy switch? A) $10,120 B) $9,056 C) $12,760 D) $17,810 E) $15,968

Q: Currently, Glasgow Importers sells 855 units a month at a price of $39 a unit. By switching to a net 30 credit policy, sales should increase to 950 units while the price remains constant. The monthly interest rate is .61 percent and the variable cost per unit is $8. What is the net present value of the proposed credit policy switch? A) $513,360 B) $516,892 C) $490,200 D) $537,520 E) $448,682

Q: Home Accents currently sells 219 units a month at a price of $46 a unit. If it switches to a net 30 credit policy, monthly sales are expected to increase by 28 units. The monthly interest rate is .57 percent and the variable cost per unit is $21. What is the net present value of the proposed credit policy switch? A) $112,145 B) $108,895 C) $106,507 D) $586,799 E) $621,135

Q: Cape May Products currently sells 487 units a month at a price of $79 a unit. The firm believes it can increase its sales by an additional 42 units if it switches to a net 30 credit policy. The monthly interest rate is .25 percent and the variable cost per unit is $31.50. What is the incremental cash inflow from the proposed credit policy switch? A) $1,774 B) $1,995 C) $2,746 D) $3,318 E) $3,375

Q: A supplier grants credit terms of 1/5, net 30. What is the effective annual rate of the discount on a purchase of $5,000? A) 17.24 percent B) 15.80 percent C) 18.80 percent D) 19.03 percent E) 12.27 percent

Q: A firm offers credit terms of 2/15, net 45. What effective annual interest rate does the firm earn when a customer forgoes the discount? A) 18.67 percent B) 20.45 percent C) 23.37 percent D) 25.34 percent E) 27.86 percent

Q: The Green Hornet offers credit terms of 2/5, net 20. Based on experience, 93 percent of all customers will take the discount. The firm sells 487 units each month at a price of $649 each. What is the average book value of accounts receivable? Assume a 365-day year. A) $60,274 B) $68,272 C) $62,866 D) $67,012 E) $65,387

Q: Today, October 12, Nadine's Fashions purchased merchandise from a supplier. The credit terms are 2/10, net 30. By what day does Nadine's have to make the payment to receive the discount? Assume a 30-day month. A) October 12 B) October 14 C) October 22 D) October 27 E) November 12

Q: Winters' just purchased $42,911 of goods from its supplier with credit terms of 1/5, net 25. What is the discounted price? A) $40,765 B) $41,209 C) $42,482 D) $42,911 E) $43,300

Q: Turner's offers credit terms of net 30 with payments received an average of 2.8 days past their due date. Annual credit sales are $2.38 million. What is the average book value of accounts receivable? Assume a 365-day year. A) $213,874 B) $223,333 C) $211,667 D) $215,407 E) $223,593

Q: Music City has an average collection period of 34.6 days and an average daily investment in receivables of $71,407. What are the annual credit sales given a 365-day year? A) $668,407 B) $577,109 C) $753,282 D) $625,893 E) $767,123

Q: On average, CT Motors has daily credit sales of $42,390, an inventory period of 53 days, and a collection period of 26 days. What is the average accounts receivable balance? A) $757,900 B) $968,810 C) $1,102,140 D) $1,015,500 E) $896,300

Q: Which two of the following are the key elements in determining the break-even default rate on a credit policy? A) Credit price and cash price assuming a zero default rate B) Required rate of return and percentage discount for cash customers C) Variable cost per unit and required rate of return D) Sales price and variable cost per unit for credit customers E) Credit price and discount rate for cash customers

Q: The accounts receivable approach to credit policy supports the theory that: A) a firm's risk of offering credit to a new customer is limited to the cost of the items sold. B) the best credit policy is an all-cash policy. C) the cost of offering credit to a new customer is the same as the cost of offering credit to an existing customer. D) increasing receivables guarantees increasing profits. E) the default risk of a credit policy is the same as the default risk under an all cash-policy if your customers remain the same.

Q: The incremental investment in receivables under the accounts receivable approach is equal to: A) P − νQ'. B) PQ'. C) PQ + ν(Q' − Q). D) P(Q' − Q). E) PQ(Q' − Q).

Q: A just-in-time inventory system: A) eliminates all inventory costs. B) reduces the inventory turnover rate. C) averages long-term inventory needs. D) focuses on immediate production needs. E) maximizes inventory costs.

Q: Inventory needs under a derived-demand inventory system are: A) primarily dependent upon the competitive demands placed on a firm's suppliers. B) based on the anticipated demand for the finished product. C) based on minimizing the cost of restocking inventory. D) held constant over time. E) determined by a Kanban system.

Q: Which one of the following items is most likely a derived-demand inventory item? A) Wrenches held in inventory by a hardware store B) Tires held in inventory by a tractor manufacturer C) Shoes on display in a retail store D) Toys just received by a toy store E) Wheat harvested by a farmer

Q: The EOQ model is designed to minimize: A) production costs. B) inventory obsolescence. C) the carrying costs of inventory. D) the costs of replenishing inventory. E) the total costs of holding inventory.

Q: At the optimal order quantity size, the: A) total cost of holding inventory is fully offset by the restocking costs. B) carrying costs are equal to zero. C) restocking costs are equal to zero. D) total costs equal the carrying costs. E) carrying costs equal the restocking costs.

Q: Which one of the following is a characteristic of a just-in-time inventory system? A) High level of dependence on supplier performance B) Low inventory turnover rates C) Long inventory periods D) Unusually high inventory levels E) Large, infrequent re-orders of raw materials

Q: Allison has developed a set of procedures for determining the amount of each raw material she needs to have in inventory if she is to keep the assembly lines operating efficiently. These procedures are commonly referred to by which one of the following terms? A) First-in, first-out method B) The Baumol model C) Net working capital planning D) Economic order procedures E) Materials requirements planning

Q: A particular inventory manager orders items only in quantities that minimize inventory costs. What is this restocking quantity called? A) Short order quantity B) Refill unit quantity C) Economic order quantity D) Minimum stock level E) Re-order limit

Q: The EOQ model is designed to determine how much: A) total inventory a firm needs during any one year. B) total inventory costs will be for any one given year. C) inventory should be purchased at one time. D) inventory will be sold per day. E) a firm loses in sales per day when an inventory item is depleted.

Q: The ABC approach to inventory management is based on the concept that: A) inventory should arrive at the time it is needed in the manufacturing process. B) the inventory period should be constant for all inventory items. C) basic inventory items that are essential to production and also inexpensive should be ordered in small quantities only. D) a small percentage of inventory items represents a large percentage of inventory cost. E) one-third of a year's inventory needs should be on hand, another third should be on order, and the last third should be unordered.

Q: Which one of the following inventory-related costs is considered a shortage cost? A) Storage costs B) Insurance cost C) Loss of customer goodwill D) Theft cost E) Opportunity cost of capital used for inventory purchases

Q: Which one of the following inventory items is probably the most liquid? A) A custom made set of kitchen cabinets B) Metal cabinets for dishwashers C) Wheat stored in a grain silo D) A customized drill press E) A partially built modular home

Q: Which one of the following inventory items is probably the least liquid? A) Plywood held in inventory by a home builder B) A wheel barrow held in inventory by a garden center C) A partially assembled interior for a new vehicle D) A set of tires owned by an automobile manufacturer E) A toy owned by a retail toy store

Q: Which one of the following statements is correct? A) Firms may opt to refuse additional credit to a delinquent customer. B) Seasonal sales have little, if any, impact on aging schedule percentages. C) Normally, firms call their delinquent customers prior to sending them a past due letter. D) If a firm wishes to sell a delinquent receivable, it must do so prior to the customer filing for bankruptcy. E) Expected decreases in the average collection period are a cause of concern.

Q: You are an accounting intern and today you are compiling a spreadsheet with column headings of: Invoice number; Customer number; < 30 days; 31-60 days; 61-90 days; > 90 days. You will list every unpaid invoice with the amount owed entered into the appropriate column based on the number of days between the sale date and today. Once you have completed that, you will sort the report by customer number and total the amounts listed in each column. What is this report called? A) Credit report B) Aging schedule C) Risk assessment report D) Turnover delineation E) Receivables consolidation report

Q: Roger's Home Appliances offers credit to customers it deems qualified based on a numerical value that estimates the probability that the customer will default if credit is granted to them. The process of computing this numerical value is referred to as: A) credit scoring. B) Credit capacity. C) receipts assessment. D) conditions for credit. E) consumer analysis.

Q: The basic factors to be evaluated in the credit evaluation process, the five Cs of credit, are: A) conditions, control, cessation, capital, and capacity. B) conditions, character, capital, control, and capacity. C) capital, collateral, control, character, and capacity. D) character, capacity, control, cessation, and collateral. E) capacity, character, collateral, capital, and conditions.

Q: Which one of the five Cs of credit refers to the general economic situation in the customer's line of business? A) Capacity B) Character C) Conditions D) Capital E) Collateral

Q: Which one of the five Cs of credit refers to a customer's willingness to pay its bills? A) Character B) Capacity C) Collateral D) Conditions E) Capital

Q: When evaluating the creditworthiness of a customer, the term capital refers to the: A) type of goods the customer wishes to obtain. B) customer's financial reserves. C) types of assets the customer wants to pledge as collateral. D) customer's willingness to pay bills in a timely fashion. E) nature of the customer's line of work.

Q: Which one of the following statements is correct? A) If the majority of a firm's new customers become repeat customers, then there is a strong argument against extending credit even if the default rate is low. B) A customer's past payment history reveals little information in relation to his or her future tendency to pay. C) A suggested policy for offering credit to new customers is to limit the amount of their initial credit purchase. D) The risk of issuing credit is the same for a new customer as it is for an existing customer. E) The recommended policy for new customers is to extend an offer of a high credit limit as an enticement to get their business.

Q: If you extend credit for a one-time sale to a new customer, you risk an amount equal to the: A) sales price of the item sold. B) variable cost of the item sold. C) fixed cost of the item sold. D) profit margin on the item sold. E) fixed and variable costs of the item sold.

Q: Which of the following characteristics are most associated with a firm that adopts a liberal credit policy? A) Mostly one-time customers and excess capacity B) Low carrying costs and full production C) Low carrying costs and high variable costs D) Low variable costs and predominately repeat customers E) Excess capacity and high variable costs

Q: When credit policy is at the optimal point, the: A) total costs of granting credit will be maximized. B) carrying costs of credit will be equal to zero. C) opportunity cost of credit will be equal to zero. D) carrying costs will equal the opportunity costs. E) total costs will equal the opportunity costs.

Q: Assume that RSF is a wholly owned subsidiary of the Rolled Steel Company. RSF provides credit financing solely for large ticket items purchased from the Rolled Steel Company. Which one of the following terms describes RSF? A) Credit department B) Parent company C) Captive finance company D) Credit union E) Service unit