1. An heuristic approach to evaluating credit policy alternatives, which involves estimating profit effects of each alternative, is the a. net present value (NPV) approach b. financial statement approach c. discounted cash flow approach d. scenario-based approach e. liquidity analysis approach 2. In using the net present value (NPV) approach to evaluating credit policy alternatives, all other things equal, a. the alternative with the highest NPV should be selected b. the alternative with the lowest NPV should be selected c. the alternative with the NPV closest to zero should be selected d. the alternative with the present value of cash inflows closest to zero should be selected 3. Emily Cheney is evaluating a proposal to extend credit to a group of new customers. The new customers will generate an average of $40,000 per day in new sales (net of bad debt). On average, they will pay in 68 days. The variable cost ratio is 80%, correction expenses are 2% of sales, and the cost of capital is 10%. What is the NPV of one day’s sales if Emily grants credit? a. $4,226.81 b. $5,190.78 c. $6,483.06 d. $7,200.00 4. You are calculating the NPV of one day’s sales associated with a given credit policy that does not offer a discount and has an average collection period of 45 days. You should discount variable costs over _____ days and credit administration and correction expenses over ______ days. a. 0, 0 b. 0, 45 c. 45, 45 d. 45, 0 5. The annual effective rate of interest for the Calgon Corp. is 12%. If the cash manager typically invests freed-up funds in overnight investments or uses funds to pay down a credit line on which the company pays daily compounded interest, the appropriate daily opportunity rate for short-term financial decisions would be: a. 0.12/365 b. (1+ 0.12) / 365 c. [(1+ 0.12) 1/365 – 1] d. (0.12) 1/365 6. Traditional but flawed measures used to monitor receivables balances include each of the following except: a. uncollected balance percentages b. the aging schedule c. accounts receivable turnover d. days sales outstanding 7. Relative to minimizing inventory investment, minimizing bank balances, and slowing payment on payables, surveyed financial executives believed speeding collection of receivables to be ______________________ as a recommended short-term financial management strategy. a. more important b. equally important c. less important d. of almost no importance 8. In addition to the bias introduced when sales are changing, DSO and accounts receivable turnover are sensitive to ________________, making them imperfect measures of changing collection experience (Assume they are calculated correctly based on a necessary information.) a. how high or low the previously calculated figure was b. the mix of cash and credit sales c. the stringency of the company’s collection effort d. the length of the period over which they are calculated Chapter 7: 1. A ________________ source of financing provides funds automatically as a company’s operations expand. a) seasonal b) cyclical c) spontaneous d) derivative e) residual 2. Which of the following constitute(s) a spontaneous financing source? (I) accounts receivable (II) accounts payable (III) deferred expenses (IV) inventories (V) accrued expenses a. I and II b. I and IV c. II and III d. III and IV e. II and V 3. Credit terms of 2/10, prox net 30 mean that a cash discount of 2% can be taken if payment is made by _________________ or the full invoice must be paid by __________________ . a. days after the invoice date, 30 days after the invoice date b. days after the invoice date, the 30th day of this calendar month c. the 10th day of the next calendar month, 30 days after the invoice date d. the 10th day of the next calendar month, the 30th day of the next calendar month e. days after the good are actually received, 30 days after the goods are actually received 4. The advantage of consignment to the retailer is a. not ever having to pay for the goods b. not havi…
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