Question Details

31. A 2/10, net 30 credit policy: 
A. is an expensive form of short-term credit if a buyer foregoes the discount.
B. provides cheap financing to the buyer for 30 days.
C. is an inexpensive means of reducing the seller's collection period if every customer takes the discount.
D. tends to have little effect on the seller's collection period.
E. tends to increase a firm's investment in receivables as compared to a straight net 30 policy.

32. The Green Hornet offers a trade discount with terms of 2/5, EOM. Assume you purchase an item on credit from The Green Hornet on Monday, November 3. What is the invoice date for this purchase? 
A. November 3
B. November 5
C. November 7
D. November 8
E. November 30

33. Which one of the following credit instruments is commonly used in international commerce? 
A. open account
B. sight draft
C. time draft
D. banker's acceptance
E. promissory note

34. A conditional sales contract: 
A. passes title to the goods sold to the buyer at the time the contract is signed.
B. normally calls for one lump sum payment on the contract payment date.
C. generally has a built-in interest cost.
D. is payable immediately upon receipt.
E. is a formal bid for a project.

35. Which of the following statements correctly reflect the effects of granting credit to customers?
I. Total revenues may increase if both the quantity sold and the price per unit increase when credit is granted.
II. A firm's cash cycle generally increases if credit is granted, all else equal.
III. Both the cost of default and the cost of discounts must be considered before granting credit.
IV. A firm may have to increase its long-term borrowing if it decides to grant credit to its customers. 
A. I, II, and III only
B. II, III, and IV only
C. I, III, and IV only
D. I, II, and IV only
E. I, II, III, and IV

36. You are considering switching from an all cash credit policy to a net 30 credit policy. You do not expect the switch to affect either your sales quantity or your sales price. Ignoring interest and assuming that every month has 30 days, your net present value of the switch will be equal to: 
A. zero.
B. your selling price per unit.
C. your selling price per unit multiplied by -1.
D. your selling price per unit multiplied by -30.
E. your total monthly sales multiplied by -1.

37. The optimal amount of credit equates the incremental costs of carrying the increase in accounts receivable to the incremental: 
A. decrease in the cash cycle.
B. benefit from decreasing the inventory level.
C. cash flows from increased sales.
D. increase in bad debts.
E. gain in net profits.

38. 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.

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

40. 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 credit policy for new customers is to extend the maximum amount of credit you will ever be willing to offer as an enticement to get their business.

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