Q&A Hero

Q: The size and nature of a firm's investment in current assets is a function of a number of different factors including all of the following except a. how efficient the firm manages its fixed assets b. the length of the operating cycle c. the sales level d. credit policies

Q: Net working capital is defined as: a. total current assets b. current assets minus current liabilities c. total assets minus total liabilities d. current assets plus current liabilities

Q: The operating cycle begins with the ____ and ends with the ____. a. purchase of resources, selling of the product on credit b. payment for purchases, liquidation of receivables c. purchases of resources, receipt of cash d. payment for purchases, receipt of cash

Q: The ____ is the optimal working capital investment and financing policy. a. aggressive policy b. moderate policy c. conservative policy d. None are correct; there is no one optimal policy for all firms.

Q: Basically the overall working capital policy decision involves a ____ of alternative policies. a. profit-risk tradeoff b. financial choice c. risk decision d. planned future funds need

Q: If a firm uses only short-term debt to finance the fluctuating level of current assets, the firm is said to be using the ____ approach to asset financing. a. aggressive b. moderate c. matching d. conservative

Q: The aggressive approach to the financing of a firm's current assets uses a ____ proportion of short-term debt and a ____ proportion of long-term debt. a. low, high b. relatively high, relatively low c. high interest, low interest d. low interest, high interest

Q: The optimal level of working capital investment is the level that is expected to a. maximize return on total assets b. maximize earnings per share c. maximize shareholder wealth d. minimize interest expenses

Q: Which of the following factors affect the firm's level of investment in working capital?a. the length of the firm's operating cycleb. the firm's sales levelc. the firm's inventory and credit policiesd. All of these are correct.

Q: When the level of working capital is increased, all of the following are expected to occur except a. expected profitability decreases b. expected profitability increases c. risk decreases d. none of these is correct

Q: With the matching approach to meeting the financing needs of the firm, fixed and permanent current assets are financed with a. long-term debt b. short-term debt c. equity funds d. long-term debt and equity funds

Q: Which of the following working capital financing policies subjects the firm to the greatest risk? a. financing fluctuating current assets with long-term debt b. financing permanent current assets with long-term debt c. financing permanent current assets with short-term debt d. financing fluctuating current assets with short-term debt

Q: All other things being equal, a policy of financing its assets with a relatively ____ proportion of short-term debt will tend to ____ the variability (or risk) of the after-tax earnings of the firm. a. large, decrease b. small, increase c. constant, lower d. large, increase

Q: All other things being equal, a policy of financing its assets with a relatively ____ proportion of short-term debt will tend to result in ____ expected after-tax earnings for the firm. a. large, lower b. constant, higher c. constant, lower d. large, higher

Q: Borrowers (e.g., business firms) feel that there is more risk associated with short-term debt (as compared with long-term debt) because of the a. uncertainty arising from interest rate fluctuations b. risk of being unable to refund the debt c. relatively high cost of short-term debt d. uncertainty of interest rate fluctuations, and the risk of being unable to refund the debt

Q: Lenders normally feel that the relative risk associated with short-term debt is ____ the risk associated with long-term debt. a. lower than b. equal to c. higher than d. none of the above

Q: Historically, the yield curve has generally been ____, which indicates that long-term interest rates usually have been ____ short-term interest rates. a. upward sloping, lower than b. downward sloping, higher than c. upward sloping, higher than d. level, about equal to

Q: All other things being equal, a policy of holding a relatively ____ proportion of the firm's total assets in the form of current assets will tend to result in a ____ risk of the firm encountering financial difficulties. a. large, higher b. small, higher c. constant, higher d. constant, lower

Q: All other things being equal, a policy of holding a relatively ____ proportion of the firm's total assets in the form of current assets will tend to result in a ____ expected profitability or rate of return on the total assets of the firm. a. large, higher b. small, higher c. constant, higher d. constant, lower

Q: The rate of return on fixed assets is normally assumed to be ____ the rate of return on current assets (especially cash and marketable securities). a. less than b. greater than c. equal to d. none of the above

Q: Under a conservative approach to working capital management, a firm tends to hold a relatively ____ proportion of its total assets in the form of current assets. a. small b. constant c. stable d. large

Q: Which of the following factors does notdirectlyaffect the firm's level of investment in working capital? a. the firm's inventory and credit policies b. the age of the firm's plant and equipment c. the firm's sales level d. the length of the firm's operating cycle

Q: Which of the following accounts is (are) not part of a firm's working capital? a. plant and equipment b. marketable securities c. cash d. plant, equipment, and cash

Q: Net working capital represents: a. the amount of current assets financed by noncurrent sources of funds. b. the difference between current assets and long-term liabilities c. the difference between current assets and fixed assets d. the difference between long-term liabilities and fixed assets

Q: The ____ shows the time interval over which additional non-spontaneous sources of working capital financing must be obtained to carry out the firm's activities. a. inventory conversion period b. cash conversion cycle c. payables deferral period d. receivables conversion period

Q: The length of the operating cycle for a firm is equal to the length of the a. payables deferral period b. cash conversion cycle c. receivables conversion period d. payables deferral period plus the cash conversion cycle

Q: The length of the operating cycle is equal to the length of the a. inventory conversion period b. receivables conversion period c. cash conversion period d. inventory conversion period plus receivables conversion period

Q: How does the operating cycle influence the size of the current asset balance of a firm?

Q: Dupree Funds is considering the fees charges by two banks. First America charges a flat rate of $0.11 per payment and First Western requires a minimum compensating balance of $500,000, plus $0.05 per payment. What is the number of payments per year where the costs of the two banks will be equal? Assume Dupree's costs of funds is 9%.a. 281,250b. 750,000c. 900,000d. 409,091

Q: Amazon's CFO is considering the fees charged by two banks at trying to determine which is best for her firm. First American charges a flat $0.11 per payment and First Western requires a minimum compensating balance of $500,000 plus $0.05 per payment. If Amazon's cost of funds is 8.50%, and the expected number of payments per year is 900,000, which bank should be chosen? a. FW, savings = $54,000 b. FA, savings = $23,000 c. FW, savings = $11,500 d. FW, savings = $18,500

Q: Slimware is considering establishing a zero-balance system for its payroll account. Currently, the firm pays its hourly employees every week on late Friday afternoon and puts a check for $750,000 in the bank to cover the payroll each Monday morning. Slimware has determined that the checks clear its bank as follows:DayPercent clearingMonday26%Tuesday51%Wednesday14%Thursday7%Friday2%What is the annual pretax return to Slimware if the firm can earn 9% on any funds released from employing the zero-balance system? Assume the company has 52 weekly pay periods each year.a. $10,374b. $199.72c. $24,601d. $17,488

Q: Tritonic is considering switching from depository transfer checks to using wire transfers for sending funds from its local banks to its bank in Chicago. The cost of the wire transfer is $5.25 more than the cost of depository transfer checks. The change would reduce the total float by 3 days. Tritonic can earn 8.5% on the funds released through the more efficient transfer. If Tritonic has 30 local banks, what annual sales level would the firm require before the change to wire transfers would be profitable? Assume there are 250 business days each year.a. $391,544,118b. $ 56,360,294c. $ 84,286,029d. $20, 671,875

Q: Currently Nemonix is using a decentralized collection system whereby customers mail their checks to one of the firm's eight regional locations. Its annual sales are $95 million. Checks are deposited each business day in a local bank and the amount of the deposit is sent to the firm's concentration bank in Dallas. The average time between deposit in the local bank and the availability of those funds, in Dallas, to Nemonix is 6 days. Nemonix has determined that the use of wire transfers would reduce the float by four days, but the transfer will cost $7.50. If transfers will be made on the 250 days that banks are open each year, should Nemonix switch to the wire transfer system? Assume that Nemonix can earn 8% on the funds released through this more efficient transfer. a. Yes-savings of $106,600 b. Yes-savings of $61,388 c. Yes-savings of $68,288 d. No-loss of $6,671

Q: Lone Star Technologies has annual sales of $336 million. Management has determined that an average of 8 days elapses between the time customers mail their payments and when the funds are available to the firm. The cost of reducing the float 3 days will be $60,000. Should Lone Star work to reduce the float if the increase in cash can be invested to earn 7.5% per annum? a. Yes-savings of $9,041 b. Yes-savings of $147,123 c. Yes-savings of $78,080 d. No-loss of $18,080

Q: A Delaware bank has offered to set up a lock-box arrangement to process Union Oil Company of California's (UNOCAL) credit card payments from customers in 8 mid-Atlantic states for an annual fee of $150,000 plus $0.05 per payment. Total collections from this area are $547.5 million annually -- consisting of an average of 10 payments per year from 1,100,000 credit card customers. Average mailing time for customers from this region would be reduced from 3.5 days currently to 2 days with the lock-box system. Check processing and clearing time also would be reduced from 5 days presently to 1.5 days with the lock-box arrangement. Establishment of the lock-box system would reduce annual payment processing costs at its Los Angeles headquarters by $250,000 and reduce the compensating balance at its Los Angeles bank by $500,000. The Delaware bank will not require UNOCAL to maintain a compensating balance if it establishes a lock-box system. Funds released by the lock-box arrangement can be invested elsewhere in the firm to earn 15% per annum pretax. Determine the net pretax benefits to UNOCAL of establishing the lock-box system with the Delaware bank. (Assume 365 days per year in the calculations.) a. $675,000 b. $750,000 c. $500,000 d. $650,000

Q: Fagins, a nationwide department store chain, currently processes all of its credit sales payments at its St. Louis headquarters. The firm is considering the establishment of a lockbox arrangement with a Los Angeles bank to process payments from its customers in 10 western states. Average mailing time for customers from this region would be reduced from 3 days to 1.5 days. In addition, check processing and clearing time would be reduced from 4 days to 2.5 days. Annual collections from the western region are $150 million. Establishment of this lockbox system would reduce the compensating balance requirement at the firm's St. Louis bank by $600,000 and reduce annual payment processing costs at the St. Louis office by $30,000. Funds released by the lockbox arrangement can be invested elsewhere in the firm to earn 12 percent. The Los Angeles bank has agreed to process Fagins' customer payments "free of charge" provided that the firm maintains a minimum compensating balance of $1,500,000 in its account at the bank. What are the annual net benefits to Fagins of establishing a lockbox system with the Los Angeles bank (assume 365 days per year)? a. $630,000 b. $332,877 c. $ 69,945 d. none of the above

Q: Fagins, a nationwide department store chain, currently processes all of its credit sales payments at its St. Louis headquarters. The firm is considering the establishment of a lockbox arrangement with a Los Angeles bank to process payments from its customers in 10 western states. With the lockbox system, average mailing time for customers from this region would be reduced from 3 days to 1.5 days. Check clearing time would also be reduced from 4 days to 2.5 days. Annual collections from the western region are $150 million. Establishment of this lockbox system would reduce the compensating balance requirement at the firm's St Louis bank by $600,000 and reduce annual payment processing costs at the St. Louis office by $30,000. Funds released by the lockbox arrangement can be invested elsewhere in the firm to earn 12 percent before taxes. The Los Angeles bank has agreed to process Fagins' customer payments for an annual fee of $100,000. What are the annual net pretax benefits to Fagins of establishing a lockbox system with the Los Angeles bank (assume 365 days per year)? a. $222,000 b. $130,000 c. $1,832,877 d. $149,945

Q: Gates Industries balance sheet and income statement for the year ending December 31, 200X are as follows: Balance Sheet ($ million) Cash $10.0 Accounts payable $15.0 Accounts receivable 15.0 Salaries, benefits, & payroll taxes payable 3.0 Inventories* 12.0 Long-term debt 15.0 Fixed assets (net) 30.0 Stockholders' equity 34.0 Total assets $67.0 Total liab. & stock. equity $67.0 Income Statement ($ million) Net sales (all credit) $125.0 Cost of sales 75.0 Selling, general, & admin. expenses 30.0 Other expenses 13.0 Earnings after tax $ 7.0 *Note: Average inventories also equal $12.0 (million). Determine the length of the firm's cash conversion cycle. a. 102.2 days b. 29.2 days c. 39.6 days d. cannot be computed with the information provided

Q: Whirlewind Company sells to retail appliance stores on credit terms of net 30. Annual credit sales are $182,500,000 spread evenly throughout the year and its accounts average 20 days overdue. The firm's variable cost ratio is 0.70. Determine Whirlewind's average investment in receivables. (Assume 365 days per year an all calculations.) a. $17,500,000 b. $25,000,000 c. $15,000,000 d. cannot be computed with the information provided

Q: Bluegrass Distilleries, Inc. refuses to extend credit to any wholesale distributors who have a history of being delinquent in repaying credit extended to them. This policy results in lost sales of $10 million annually. Based on past experience with these types of customers, the firm estimates that the average collection period would be 90 days and that the bad-debt loss ratio would be 6 percent. The firm's variable cost ratio is 0.80, making its profit contribution ratio 0.20. Bluegrass Distilleries' required pretax return (i.e., opportunity cost) on receivables investments is 20 percent. When converting from annual to daily or vice versa, assume there are 365 days per year. If Bluegrass Distilleries extends credit to these (previously delinquent) customers, determine the increase in the investmentin receivables. a. $27,397 b. $2,465,753 c. $111,111 d. $125,000

Q: Warren Motor Company sells $30 million of its products to wholesalers on terms of "net 30." Currently, the firm's average collection period is 48 days. In an effort to speed up the collection of receivables, Warren is considering offering a cash discount of 2 percent if customers pay their bills within 10 days. The firm expects 50 percent of it's customers to take the discount and it's average collection period to decline to 30 days. The firm's required pretax return (i.e. opportunity cost) on receivables investment is 16 percent. Determine the net effect on Warren's pretax profits of offering a 2 percent cash discount. a. $ 300,000 b. $236,712 c. -$63,288 d. none of the above

Q: Warren Motor Company sells $30 million of its products to wholesalers on terms of "net 30." Currently, the firm's average collection period is 48 days. In an effort to speed up the collection of receivables, Warren is considering offering a cash discount of 2 percent if customers pay their bills within 10 days. The firm expects 50 percent of it's customers to take the discount and it's average collection period to decline to 30 days. The firm's required pretax return (i.e. opportunity cost) on receivables investment is 16 percent. Determine Warren's pretax earnings on the funds released from the reduction in receivables. (Assume a 365 day year) a. $1,479,452 b. $236,712 c. $266,667 d. none of the above

Q: Warren Motor Company sells $30 million of its products to wholesalers on terms of "net 30." Currently, the firm's average collection period is 48 days. In an effort to speed up the collection of receivables, Warren is considering offering a cash discount of 2 percent if customers pay their bills within 10 days. The firm expects 50 percent of it's customers to take the discount and it's average collection period to decline to 30 days. The firm's required pretax return (i.e. opportunity cost) on receivables investment is 16 percent. Determine the cost of the cash discounts to Warren. a. $300,000 b. $ 60,000 c. $ 40,000 d. $ 48,000

Q: Mace Auto Parts Company sells to retail auto supply stores on credit terms of "net 60". Annual credit sales are $300 million (spread evenly throughout the year) and its accounts average 28 days overdue. The firm's variable cost ratio is 0.75 (i.e. variable costs are 75 percent of sales). When converting from annual to daily data or vice versa, assume there are 365 days per year. Suppose that Mace's sales are expected to increase by 20 percent next year and, through more effective collection methods, the firm is able to reduce its average collection period by20 days. Determine the firm's average investment in receivables for next year under these conditions. a. $67,068,493 b. $56,666,667 c. $5,294,118 d. $73,972,602

Q: Mace Auto Parts Company sells to retail auto supply stores on credit terms of "net 60". Annual credit sales are $300 million (spread evenly throughout the year) and its accounts average 28 days overdue. The firm's variable cost ratio is 0.75 (i.e., variable costs are 75 percent of sales). When converting from annual to daily data or vice versa, assume there are 365 days per year. Determine Mace's average investment in receivables. a. $ 821,918 b. $ 3,409,091 c. $72,328,767 d. $616,438

Q: Mace Auto Parts Company sells to retail auto supply stores on credit terms of "net 60". Annual credit sales are $300 million (spread evenly throughout the year) and its accounts average 28 days overdue. The firm's variable cost ratio is 0.75 (i.e., variable costs are 75 percent of sales). When converting from annual to daily data or vice versa, assume there are 365 days per year. Determine Mace's average collection period. a. 88 days b. 44 days c. 74 days d. 60 days

Q: Galway's sales average $12 million per day. If Galway could reduce the time between customer's mailing date and when these payments are available to Galway by 3 days, what would be the resulting annual increase in earnings if the opportunity cost of funds in 9.25%? a. $1.11 million b. $98,630 c. $3.33 million d. $9,123

Q: Jester, Inc. has annual sales of $434 million. An average of 12 days elapses between the time a customer mails its payment and the funds are available to Jester. What is the increase in the average cash balance if the use of a lock box system is believed to reduce the collection time by 4 days? a. $4.76 million b. $49.6 million c. $633,640 d. $9.5 million

Q: Marcos Company annual sales are $730 million. Suppose Marcos is able to reduce the time required to process customer payments by 3 days through more efficient payment processing techniques. Given that any funds released by these methods can be invested elsewhere in the company to yield a 15% pretax rate of return, determine the annual increase in pretax returns. (Assume 365 days per year in all calculations.) a. $900,000 b. $300,000 c. $6,000,000 d. cannot be determined with information provided

Q: Lexicon has a daily average check collections of $180,000 and it takes the firm 5 days before it can completely process those checks. An automated lockbox system that costs $33,000 a year would reduce the processing time by 2 days. Should Lexicon invest in this system if the opportunity cost of short-term funds is 12.3 percent? a. Yes, savings of $44,280 b. Yes, savings of $33,420 c. Yes, savings of $11,280 d. No, loss of $10,860

Q: Average daily sales for Sierra are $140,000. The financial manager can reduce the float by 4 days using a lockbox system that will cost $33,000. If the opportunity cost of any funds released is 11 percent, what is the annual savings from this system? a. $28,600 b. $14,520 c. $61,600 d. $17,600

Q: Tocor is considering the implementation of a lockbox collection system for its mid-western and western sales regions. Sales in those two regions are 30 percent of Tocor's annual sales of $560 million. The lockbox system will cost $187,000 a year and reduce collection time by 3 days. If Tocor could invest any released funds at 10.85 percent, should it use the lockbox system? Assume 365 days per year. a. Yes, savings of $149,819 b. Yes, savings of $312,397 c. No, loss of $37,181 d. No, loss of $35,100

Q: Pronet has annual sales of $724 million from its 600 retail stores. Pronet can reduce its mail float by 2 days through the use of wire transfers. The annual cost of the wire transfers is expected to be $105,610. If Pronet's cost of short-term funds is 9.75 percent, should the change to wire transfers be made? Assume 365 days per year. a. No, loss of $247,340 b. Yes, savings of $281,185 c. Yes, savings of $474,582 d. No, loss of $105,610

Q: MLX has annual sales of $320 million per year and has calculated that the collection float is 12 days. If MLX is currently paying 9.35 percent on its line of credit, what amount of interest expense could be saved if the collection float is reduced by 3 days? Assume 365 days per year. a. $249,333 b. $573,808 c. $299,200 d. $245,918

Q: Zycad has sales of $110 million a year. If Zycad reduces their processing float by 3 days, what is the increase in the firm's average cash balance? Assume 365 days per year. a. $916,667 b. $904,110 c. $872,180 d. $409,110

Q: Osborne Shipbuilding Company, located in Baton Rouge, receives large remittances from its customers in New York and California. If the firm deposits these checks in its local bank, two business days are required for the checks to clear and the funds to become usable by the firm. However, if Osborne sends an employee to New York or California and presents the check for payment at the bank upon which it is drawn, the funds are available immediately to the firm. The firm can earn 8% per annum on short-term investments and the cost of sending an employee to New York or California to present the check for payment is $500. What is the net benefit to the firm of employing this special handling technique for a $5 million check received on Tuesday (assume 365 days per year)? a. $2,192 b. $1,692 c. $2,000 d. $1,096

Q: The Essex Company found that an average of 10 days elapses between when customer payments are received and the deposited funds clear the customer's bank and become usable by the firm. Essex's annual sales are $240 million (Assume 365 days per year when converting from annual data to daily data or vice versa.) Suppose that Essex is able to reduce the time required to process customer payments by 4 days through more efficient payment processing methods. Given that these additional funds can be used to reduce the firm's outstanding bank loans (10% interest rate), what is the annual pretax savings in interest expense? a. $263,014 b. $96,000,000 c. $66,667 d. $2,630,149

Q: The Essex Company found that an average of 10 days elapses between when customer payments are received and the deposited funds clear the customer's bank and become usable by the firm. Essex's annual sales are $240 million. (Assume 365 days per year when converting from annual data to daily data or vice versa.) What is the increase in Essex's average cash balance assuming that it can reduce the time required to process customer payments by 3 days through more efficient payment processing methods? a. $666,667 b. $120,000,000 c. $1,972,603 d. $270,000

Q: Laserscope has an inventory conversion period of 45 days, a receivables conversion period of 42 days, and a payables deferral period of 51 days. What is the length of its cash conversion cycle? a. 54 days b. 36 days c. 48 days d. cannot determine with the information provided

Q: Crystal Oil has $9 million in accounts payable, $1.8 in salaries and taxes payable, and $10.4 in other current liabilities. If Crystal Oil had a cost of sales of $54 million and selling, general, and administrative expense of $18 million, what is the length of its payables deferral period? a. 107.47 days b. 73.02 days c. 54.75 days d. 45.63 days

Q: Linear Technology had sales (all on credit) of $36 million and a gross profit margin of 30% last year. If Linear Technology's inventory averaged $3.9 million, and its accounts receivable were $5.0 million, what was the length of its operating cycle? a. 90.2 days b. 128.9 days c. 111.9 days d. 107.2 days

Q: Last year Bizmart had credit sales of $32 million and a net profit margin of 8%. If Bizmart had accounts receivable of $4.5 million, what was the length of the receivables conversion period? a. 51.3 days b. 56.3 days c. 54.9 days d. 47.2 days

Q: Sherwood Packing had sales of $3.2 million and a gross profit margin of 35% last year. If Sherwood's inventory averaged $0.4 million last year, what was the length of the inventory conversion period? a. 130.4 days b. 70.2 days c. 195.5 days d. 45.6 days

Q: Runners Ink, Inc. had sales last year of $700,000 and 35 percent of its sales are for cash, with the remainder buying on terms of net 30 days. If the receivables conversion period is actually 38 days, what is Runners Ink's accounts receivable?a. $72,877b. $25,507c. $47,370d. $12,465

Q: If Swatch's inventory conversion period is 45 days, its payables deferral period is 35 days, and its receivables conversion period is 50 days, then its cash conversion cycle must be ____ days. a. 60 b. 90 c. 30 d. cannot be determined from information given

Q: Tefft Industries has an average inventory of $170,000, sells on terms of 2/10, net 30, and its cost of sales is $540,000. What is Tefft's inventory conversion period? a. 85 days b. 115 days c. 105 days d. cannot be determined from the data given

Q: What is the length of the cash conversion cycle for a firm with annual sales (all cash) of $280,000, an inventory conversion period of 35 days, and a payables deferral period of 25 days. a. 0 days b. 25 days c. 10 days d. 15 days

Q: What is the inventory conversion period for O'Brian's if it has sales of $320,000, an average inventory of $5,333, and a cash conversion cycle of 20 days? Assume that the cost of sales is 55 percent of sales. a. 6 days b. 11 days c. 13.5 days d. 15 days

Q: Renfro Industries balance sheet for December 31, 20x3 is as follows:Assets ($000)Liabilities and Equity ($000)Cash$ 8,000Accounts Payable$ 36,000Marketable Securities4,000Notes Payable12,000Accounts Receivable60,000Other Current Liabilities32,000Inventories100,000Long-term debt80,000Plant & Equip.220,000Preferred Stock48,000Less: Deprec.64,000Common Stock20,000Net Plant & Equip.156,000Paid-in Surplus40,000Retained Earnings60,000Total Assets$328,000Total Claims$328,000What is Renfro's net working capital at the end of 20x3?a. -$8 millionb. $36 millionc. $92 milliond. $172 million

Q: The cost of funds invested in inventories is measured by the ____. a. cost of insuring the inventory b. stockout costs c. required rate of return d. rate of interest on borrowed funds

Q: All of the following are components of carrying costs except: a. insurance b. storage costs c. handling costs d. set-up costs

Q: When an order is placed for an item that is manufactured internally within a company, ordering costs consist primarily of ____. a. storage and handling costs b. deterioration costs c. production set-up costs d. carrying costs

Q: In general, the ____ a firm's production cycle, the ____ its work-in-process inventory. a. longer, larger b. longer, smaller c. shorter, larger d. length of cycle is not related to amount of work-in-process

Q: The types of inventories that manufacturing firms generally hold include all the following except: a. raw materials b. working stock c. finished goods d. work-in-process

Q: ____ are the criteria the firm uses to screen credit applicants in order to determine which of its customers should be offered credit and how much. a. Credit terms b. Credit standards c. Seasonal datings d. Credit terms and standards

Q: Increasing collection expenditures is likely to result in a. shorter average collection period b. reduced bad-debt losses c. higher accounts receivable balances d. a and b only

Q: Traditional discussion of guidelines for examining credit worthiness include "the five C's of credit". Each of the following is one of the "five C's" except a. capacity b. cooperation c. character d. conditions

Q: The primary goal of accounts receivable management should be a. minimizing lost sales b. maximizing shareholder wealth c. increasing market share d. minimizing receivables investment

Q: The effect of a change in a firm's credit terms from "net 30" to "2/10, net 30" on its own balance sheet is likely to be a. decreased accounts receivable b. increased accounts receivable c. decreased accounts payable d. increased accounts payable

Q: The effect of a change in a firm's credit terms from "net 30" to "2/10, net 30" on its customer's balance sheets is likely to be a. decreased accounts receivable b. increased accounts receivable c. decreased accounts payable d. increased accounts payable