Question 1

A firm's credit policy consists of which of the following items?

Accepted Answer

A)   Credit period, cash discounts, credit standards, collection policy.
B)   Credit period, cash discounts, receivables monitoring, collection policy.
C)   Cash discounts, credit standards, receivables monitoring, collection policy.
D)   Credit period, receivables monitoring, credit standards, collection policy.
E)   Credit period, cash discounts, credit standards, receivables monitoring.F) C) and E)
G) D) and E)

Question 2

Which of the following is not correct?

Accepted Answer

A)   A more aggressive collection policy will reduce bad debt expenses, but may also decrease sales.
B)   Collection policy usually has little impact on sales since collecting past-due accounts occurs only after the customer has already purchased.
C)   Typically a firm will turn over an account to a collection agency only after it has tried several times on its own to collect the account.
D)   A lax collection policy will frequently lead to an increase in accounts receivable.
E)   Collection policy is how a firm goes about collecting past-due accounts.F) A) and B)
G) A) and C)

Question 3

Harris Flooring Inc.is planning to borrow $12,000 from the bank for new sanding machines.The bank offers the choice of a 12 percent discount interest loan or a 10.19 percent add-on,one-year installment loan,payable in 4 equal quarterly payments.What is the effective rate of interest on the 12 percent discounted loan?

Accepted Answer

A)   10.7%
B)   12.0%
C)   12.5%
D)   13.6%
E)   14.1%F) All of the above
G) A) and C)

Question 4

The Somerset Bank offered Blakemore Inc.the following loan alternatives in response to its request for a $75,000,1-year loan. Altermative 1:   \quad   7 percent discaunt interest, winth a 10 percent campensating balance
Alternetive 2 :   \quad   8 percent simple interest, writh interest paid monthly.
What is the effective annual rate on the cheaper loan?

Accepted Answer

A)   8.00%
B)   7.23%
C)   7.67%
D)   8.43%
E)   8.30% F) A) and D)
G) C) and E)

Question 5

Gladys Turner borrowed $12,000 from the bank using a 10.19 percent "add-on",one-year installment loan,payable in four equal quarterly payments.What is the effective annual rate of interest?

Accepted Answer

A)   9.50%
B)   10.19%
C)   15.99%
D)   16.98%
E)   20.38%F) B) and C)
G) A) and E)

Question 6

Cash discounts are mostly used to get new customers in the door since existing customers almost always use the delayed payment terms.

Accepted Answer

A) True 
 B)False

Question 7

The credit period is the amount of time it takes to do a credit search on a potential customer.

Accepted Answer

A) True 
 B)False

Question 8

Campbell Computing Inc.currently has sales of $1,000,000,and its days sales outstanding is 30 days.The financial manager estimates that offering longer credit terms would (1) increase the days sales outstanding to 50 days and (2) increase sales to $1,200,000.However,bad debt losses,which were 2 percent on the old sales,would amount to 5 percent on the incremental sales only (bad debts on the old sales would stay at 2 percent) .Variable costs are 80 percent of sales,and Campbell has a 15 percent receivables financing cost.What would the annual incremental pre-tax profit be if Bass extended its credit period?

Accepted Answer

A)   -$20,000
B)   -$10,000
C)   $0
D)   $10,000
E)   $20,000F) All of the above
G) B) and D)

Question 9

When deciding whether to offer a discount for cash payment,a firm must balance the profits from additional sales with the lost revenues from the discount.

Accepted Answer

A) True 
 B)False

Exam 27: Providing and Obtaining Credit

Gladys Turner borrowed $12,000 from the bank using a 10.19 percent "add-on",one-year installment loan,payable in four equal quarterly payments.What is the effective annual rate of interest?

Correct Answer
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A firm's credit policy consists of which of the following items?

Correct Answer
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When deciding whether to offer a discount for cash payment,a firm must balance the profits from additional sales with the lost revenues from the discount.

Correct Answer
verified

The credit period is the amount of time it takes to do a credit search on a potential customer.

Correct Answer
verified

Correct Answer
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Correct Answer
verified

Cash discounts are mostly used to get new customers in the door since existing customers almost always use the delayed payment terms.

Correct Answer
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Which of the following is not correct?

Correct Answer
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Correct Answer
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Exam 27: Providing and Obtaining Credit

Gladys Turner borrowed $12,000 from the bank using a 10.19 percent "add-on",one-year installment loan,payable in four equal quarterly payments.What is the effective annual rate of interest?

Correct AnswerverifiedShow Answer

A firm's credit policy consists of which of the following items?

Correct AnswerverifiedShow Answer

When deciding whether to offer a discount for cash payment,a firm must balance the profits from additional sales with the lost revenues from the discount.

Correct AnswerverifiedShow Answer

The credit period is the amount of time it takes to do a credit search on a potential customer.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Cash discounts are mostly used to get new customers in the door since existing customers almost always use the delayed payment terms.

Correct AnswerverifiedShow Answer

Which of the following is not correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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