FINANCE 2800 - CHAPTER 14

________ is a procedure resulting in a number reflecting an applicant's credit strength, derived as a weighted average of the scores obtained on a variety of key financial and credit characteristics. A) Credit scoring B) Aging of receivables C) CAPM D) The economic order quantity model

A) Credit scoring

In the EOQ model, if the size of order increases, the ________. A) carrying cost will increase B) order cost will remain unchanged C) order cost will increase D) storage cost will decrease

A) carrying cost will increase

If the cash discount period is increased, a firm's investment in accounts receivable is expected to ________. A) increase because new customers attracted by the new policy will result in new accounts receivable B) decrease because new customers will doubt the quality of product due to increase in discount C) increase because existing discount takers will pay more to get more discount D) decrease because of existing discount takers will now pay earlier to avail the cash discount

A) increase because new customers attracted by the new policy will result in new accounts receivable

As credit standards are relaxed, sales are expected to ________ and the investment in accounts receivable is expected to ________. A) increase; increase B) increase; decrease C) decrease; decrease D) decrease; increase

A) increase; increase

The objective for managing inventory is to ________. A) turn over inventory as quickly as possible without losing sales from stockouts B) improve the average collection period without affecting the sales C) make payment for the inventory as slowly as possible without losing suppliers D) reduce the time taken to process inventory into finished goods and increase sales

A) turn over inventory as quickly as possible without losing sales from stockouts

The ________ is the length of time from the point when raw materials are purchased on account to the point when payment is made to the supplier of the goods. A) cash conversion cycle B) average payment period C) average age of inventory D) average collection period

B) average payment period

When managing accounts payable, a good strategy would be to ________. A) pay as early as possible creating better credit rating for a firm B) pay as slowly as possible without damaging a firm's credit rating C) pay big customers early to maintain good relations and small customers on a later date D) pay only when a firm has adequate funds to meet its liabilities

B) pay as slowly as possible without damaging a firm's credit rating

Delaying the payment of accounts payable in order to improve cash management is known as ________. A) ACH transfers B) stretching payables C) credit scoring D) lockbox system

B) stretching payables

The ________ is an inventory technique that takes into account various operating and financial costs to determine the order quantity for a specific inventory item. A) JIT system B) ABC system C) EOQ model D) LIFO model

C) EOQ model

Which of the following is true of cash discount? A) It increases bad debts because after availing discounts all customers may not pay. B) It decreases the investment in accounts receivable and increases the per unit profit. C) It helps to speed up collections without putting pressure on customers. D) It reduces sales because the customers feel that the products are of inferior quality.

C) It helps to speed up collections without putting pressure on customers.

The goal of working capital management is to ________. A) achieve a balance between short-term and long-term liabilities so that they add to the achievement of a firm's overall goals B) achieve a balance between a firm's non-current assets and non-current liabilities C) achieve a balance between profitability and risk that contributes positively to a firm's value D) achieve a balance between short-term and long-term assets so that they add to the achievement of a firm's overall goals

C) achieve a balance between profitability and risk that contributes positively to a firm's value

The ________ is the time period that elapses from the point when a firm uses the raw materials in manufacturing a finished good to the point when the finished good is sold. A) cash turnover B) cash conversion cycle C) average age of inventory D) average collection period

C) average age of inventory

The key dimension of credit selection which analyzes an applicant's record of meeting past obligations is ________. A) collateral B) capacity C) character D) capital

C) character

A(n) ________ in current assets increases net working capital, thereby ________ the risk of insolvency. A) decrease; increasing B) increase; increasing C) increase; reducing D) decrease; reducing

C) increase; reducing

If a firm increases its current assets relative to total assets, ________. A) it increases return and reduces risk B) it increases return and increases risk C) it reduces return and reduces risk D) it reduces return and increases risk

C) it reduces return and reduces risk

When managing accounts receivable, a good strategy would be to ________. A) send the accounts to a collection agency to extract payments B) tighten the credit terms to force the customer to pay on time C) offer cash discount without losing sales and imposing burden on customer D) make frequent personal visits to the customer to remind him about his dues

C) offer cash discount without losing sales and imposing burden on customer

An increase in collection efforts by a firm will result in ________ in sales volume, ________ in the investment in accounts receivable, ________ in bad debt expenses, and ________ in collection expenditures. A) an increase; a decrease; an increase; a decrease B) an increase; a decrease; a decrease; an increase C) an increase; a decrease; an increase; an increase D) a decrease; a decrease; a decrease; an increase

D) a decrease; a decrease; a decrease; an increase

The ________ is the time period that elapses from the point when a firm sells a finished good on account to the point when the receivable is collected. A) cash conversion cycle B) average payment period C) average age of inventory D) average collection period

D) average collection period

The key dimension of credit selection which analyzes an applicant's ability to repay the requested credit focused on cash flows available is ________. A) collateral B) capital C) conditions D) capacity

D) capacity

A ________ is a short-term, unsecured promissory note issued by a corporation with a very high credit standing. A) negotiable certificate of deposit B) repurchase agreement C) money market mutual fund D) commercial paper

D) commercial paper