1

1. A ___________ draft is initiated by the payee, who has been approved to draw against the payor's account.

   	a.	preauthorized
   	b.	payable through
   	c.	sight
   	d.	depository

4 points

QUESTION 2

1. A credit policy includes each of the following except:

   	a.	the company's approach to credit investigation and corrections
   	b.	whether a "just in time" system will be used
   	c.	credit terms
   	d.	credit standards

4 points

QUESTION 3

1. Compensating balances have the following advantages EXCEPT:

   	a.	Can be re-loaned to another customer
   	b.	Form a cushion
   	c.	Have the effect of increasing total deposits and assets
   	d.	Are directly comparable between banks

4 points

QUESTION 4

1. Credit analyst John Adams is considering a $1,000 order from a new customer. The variable cost of filling the order is 95 percent of sales. John estimates collection costs are 2 percent of sales. The customer will pay in 60 days. If the appropriate cost of capital is 18%, what is the NPV of extending credit to the new customer?

   	a.	$1.84
   	b.	$4.31
   	c.	$30.00
   	d.	$26.87

4 points

QUESTION 5

1. Drafts are very similar to checks; the main difference is that

   	a.	checks are not always drawn on banks but drafts are
   	b.	banks always charge more than twice as much to process drafts
   	c.	the payee must authorize payment when drafts are presented
   	d.	many more drafts bounce than checks

4 points

QUESTION 6

1. In September, the Johnson Company utilizes direct sends for which its bank charges fees of $100. The bank's earned credit ratio is 5%. What is the minimum balance required to compensate the bank for the September fees?

   	a.	$2,000
   	b.	$12,177
   	c.	$24,333
   	d.	$27,652

4 points

QUESTION 7

1. 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 necessary information.)

   	a.	the mix of cash and credit sales
   	b.	the length of the period over which they are calculated
   	c.	how high or low the previously calculated figure was
   	d.	the stringency of the company's collection effort

4 points

QUESTION 8

1. In using the net present value (NPV) approach to evaluating credit policy alternatives, all other things equal,

   	a.	the alternative with the NPV closest to zero should be selected
   	b.	the alternative with the lowest NPV should be selected
   	c.	the alternative with the present value of cash inflows closest to zero should be selected
   	d.	the alternative with the highest NPV should be selected

4 points

QUESTION 9

1. Interstate banking on an unlimited scale would make short-term financial management

   	a.	less costly and more efficient
   	b.	more costly
   	c.	obsolete
   	d.	less efficient and more dependent on computers

4 points

QUESTION 10

1. Jesse Gonzalez 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. On average, they will pay in 68 days. The variable cost ratio is 80%, collection expenses are 2% of sales, and the cost of capital is 10%. What is the NPV of one day's sales if Jesse grants credit? Assume that there is no bad debt loss.

   	a.	$7,200.00
   	b.	$5,190.78
   	c.	$6,483.06
   	d.	$4,226.81

4 points

QUESTION 11

1. Measures for monitoring receivables may be compared to:

   	a.	A key competitors values
   	b.	Historical trends
   	c.	Management targets
   	d.	All of the above
   	e.	None of the above

4 points

QUESTION 12

1. Out of the following, which cash management activity was altered the most as the U.S. allowed nationwide bank branching?

   	a.	Borrowing
   	b.	Disbursements
   	c.	Cash Forecasting
   	d.	Investments
   	e.	Concentration *

4 points

QUESTION 13

1. Recently enacted international bank capital standards (the Basel standards) require banks to hold the most capital for ______________, less capital for ______________, and the least capital for ______________ due to the different risk weightings.

   	a.	Treasury bonds, home mortgages, business loans
   	b.	home mortgages, business loans, Treasury bonds
   	c.	business loans, Treasury bonds, home mortgages
   	d.	business loans, home mortgages, Treasury bonds
   	e.	home mortgages, Treasury bonds, business loans

4 points

QUESTION 14

1. Rule-based computerized applications of artificial intelligence to credit decision making are known as:

   	a.	expert systems
   	b.	just in time systems
   	c.	portfolio analysis systems
   	d.	credit extension systems

4 points

QUESTION 15

1. The JED Manufacturing Inc. has the following sales and account receivables balances for the first quarter. Assume 30-day months. Use this information for answering questions 15-17

   	Credit Sales	Uncollected Amount
   January	$100,000	$10,000
   February	125,000	15,000
   March	150,000	25,000
   April	200,000	50,000

   What is the DSO for the manufacturing company (rounded up to a whole number)?

   	a.	21 days
   	b.	34 days
   	c.	18 days
   	d.	27 days
   	e.	15 days

4 points

QUESTION 16

1. What is JED's accounts receivable turnover?

   	a.	8.5 times
   	b.	10.25 times
   	c.	3.50 times
   	d.	15 times
   	e.	5.75 times

4 points

QUESTION 17

1. What is JED's Payment Index (rounded up to a whole number)?

   	a.	82%
   	b.	127%
   	c.	64%
   	d.	74%
   	e.	52%

4 points

QUESTION 18

1. The average collection period is also:

   	a.	the sum of the credit sales from the last six months
   	b.	accounts receivable turnover
   	c.	aging schedule
   	d.	days sales outstanding

4 points

QUESTION 19

1. The basic principle underlying collection philosophy is to collect the amount owed as close to the credit terms as possible while

   	a.	preserving customer goodwill
   	b.	minimizing total collection costs
   	c.	minimizing the cost of capital
   	d.	maximizing accounts receivable turnover

4 points

QUESTION 20

1. The major motives for trade credit extension include all of the following except:

   	a.	production motive
   	b.	pricing motive
   	c.	operating motive
   	d.	contracting cost motive

4 points

QUESTION 21

1. The major paper-based payment (or funds transfer) mechanisms are

   	a.	checks, Western Union transfers
   	b.	checks, ACHs
   	c.	checks, CHIPs
   	d.	checks, drafts

4 points

QUESTION 22

1. The primary determinants of credit limits include the following:

   	a.	Customers requirements for the firms products
   	b.	Customers recent payment history
   	c.	Customers ability to pay its debts
   	d.	Customers recent payment history and ability to pay its debts
   	e.	all of the above

4 points

QUESTION 23

1. 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

4 points

QUESTION 24

1. Weakness of the "Five C's" framework of credit include all of the following EXCEPT:

   	a.	does not specify when to reject applicants
   	b.	does not specify how to set credit standards in order to maximize shareholder wealth
   	c.	does not specify how much information to gather
   	d.	does not specify a framework for the development of credit standards

4 points

QUESTION 25

1. With respect to the receivables held on the balance sheets of publicly traded firms, over the past three decades the DSO has slightly ______ while the receivables-to-assets ratio has substantially _______.

   	a.	decreased; increased
   	b.	increased; increased
   	c.	decreased; decreased
   	d.	increased; decreased

1. s initiated by the payee, who has been approved to draw against the payor's account.

   a.	preauthorized
   b.	payable through
   c.	sight
   d.	depository

4 points

QUESTION 2

1. A credit policy includes each of the following except:

   a.	the company's approach to credit investigation and corrections
   b.	whether a "just in time" system will be used
   c.	credit terms
   d.	credit standards

4 points

QUESTION 3

1. Compensating balances have the following advantages EXCEPT:

   a.	Can be re-loaned to another customer
   b.	Form a cushion
   c.	Have the effect of increasing total deposits and assets
   d.	Are directly comparable between banks

4 points

QUESTION 4

1. Credit analyst John Adams is considering a $1,000 order from a new customer. The variable cost of filling the order is 95 percent of sales. John estimates collection costs are 2 percent of sales. The customer will pay in 60 days. If the appropriate cost of capital is 18%, what is the NPV of extending credit to the new customer?

   a.	$1.84
   b.	$4.31
   c.	$30.00
   d.	$26.87

4 points

QUESTION 5

1. Drafts are very similar to checks; the main difference is that

   a.	checks are not always drawn on banks but drafts are
   b.	banks always charge more than twice as much to process drafts
   c.	the payee must authorize payment when drafts are presented
   d.	many more drafts bounce than checks

4 points

QUESTION 6

1. In September, the Johnson Company utilizes direct sends for which its bank charges fees of $100. The bank's earned credit ratio is 5%. What is the minimum balance required to compensate the bank for the September fees?

   a.	$2,000
   b.	$12,177
   c.	$24,333
   d.	$27,652

4 points

QUESTION 7

1. 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 necessary information.)

   a.	the mix of cash and credit sales
   b.	the length of the period over which they are calculated
   c.	how high or low the previously calculated figure was
   d.	the stringency of the company's collection effort

4 points

QUESTION 8

1. In using the net present value (NPV) approach to evaluating credit policy alternatives, all other things equal,

   a.	the alternative with the NPV closest to zero should be selected
   b.	the alternative with the lowest NPV should be selected
   c.	the alternative with the present value of cash inflows closest to zero should be selected
   d.	the alternative with the highest NPV should be selected

4 points

QUESTION 9

1. Interstate banking on an unlimited scale would make short-term financial management

   a.	less costly and more efficient
   b.	more costly
   c.	obsolete
   d.	less efficient and more dependent on computers

4 points

QUESTION 10

1. Jesse Gonzalez 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. On average, they will pay in 68 days. The variable cost ratio is 80%, collection expenses are 2% of sales, and the cost of capital is 10%. What is the NPV of one day's sales if Jesse grants credit? Assume that there is no bad debt loss.

   a.	$7,200.00
   b.	$5,190.78
   c.	$6,483.06
   d.	$4,226.81

4 points

QUESTION 11

1. Measures for monitoring receivables may be compared to:

   a.	A key competitors values
   b.	Historical trends
   c.	Management targets
   d.	All of the above
   e.	None of the above

4 points

QUESTION 12

1. Out of the following, which cash management activity was altered the most as the U.S. allowed nationwide bank branching?

   a.	Borrowing
   b.	Disbursements
   c.	Cash Forecasting
   d.	Investments
   e.	Concentration *

4 points

QUESTION 13

1. Recently enacted international bank capital standards (the Basel standards) require banks to hold the most capital for ______________, less capital for ______________, and the least capital for ______________ due to the different risk weightings.

   a.	Treasury bonds, home mortgages, business loans
   b.	home mortgages, business loans, Treasury bonds
   c.	business loans, Treasury bonds, home mortgages
   d.	business loans, home mortgages, Treasury bonds
   e.	home mortgages, Treasury bonds, business loans

4 points

QUESTION 14

1. Rule-based computerized applications of artificial intelligence to credit decision making are known as:

   a.	expert systems
   b.	just in time systems
   c.	portfolio analysis systems
   d.	credit extension systems

4 points

QUESTION 15

1. The JED Manufacturing Inc. has the following sales and account receivables balances for the first quarter. Assume 30-day months. Use this information for answering questions 15-17

   	Credit Sales	Uncollected Amount
   January	$100,000	$10,000
   February	125,000	15,000
   March	150,000	25,000
   April	200,000	50,000

   What is the DSO for the manufacturing company (rounded up to a whole number)?

   a.	21 days
   b.	34 days
   c.	18 days
   d.	27 days
   e.	15 days

4 points

QUESTION 16

1. What is JED's accounts receivable turnover?

   a.	8.5 times
   b.	10.25 times
   c.	3.50 times
   d.	15 times
   e.	5.75 times

4 points

QUESTION 17

1. What is JED's Payment Index (rounded up to a whole number)?

   a.	82%
   b.	127%
   c.	64%
   d.	74%
   e.	52%

4 points

QUESTION 18

1. The average collection period is also:

   a.	the sum of the credit sales from the last six months
   b.	accounts receivable turnover
   c.	aging schedule
   d.	days sales outstanding

4 points

QUESTION 19

1. The basic principle underlying collection philosophy is to collect the amount owed as close to the credit terms as possible while

   a.	preserving customer goodwill
   b.	minimizing total collection costs
   c.	minimizing the cost of capital
   d.	maximizing accounts receivable turnover

4 points

QUESTION 20

1. The major motives for trade credit extension include all of the following except:

   a.	production motive
   b.	pricing motive
   c.	operating motive
   d.	contracting cost motive

4 points

QUESTION 21

1. The major paper-based payment (or funds transfer) mechanisms are

   a.	checks, Western Union transfers
   b.	checks, ACHs
   c.	checks, CHIPs
   d.	checks, drafts

4 points

QUESTION 22

1. The primary determinants of credit limits include the following:

   a.	Customers requirements for the firms products
   b.	Customers recent payment history
   c.	Customers ability to pay its debts
   d.	Customers recent payment history and ability to pay its debts
   e.	all of the above

4 points

QUESTION 23

1. 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

4 points

QUESTION 24

1. Weakness of the "Five C's" framework of credit include all of the following EXCEPT:

   a.	does not specify when to reject applicants
   b.	does not specify how to set credit standards in order to maximize shareholder wealth
   c.	does not specify how much information to gather
   d.	does not specify a framework for the development of credit standards

4 points

QUESTION 25

1. With respect to the receivables held on the balance sheets of publicly traded firms, over the past three decades the DSO has slightly ______ while the receivables-to-assets ratio has substantially _______.

   a.	decreased; increased
   b.	increased; increased
   c.	decreased; decreased
   d.	increased; decreased