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A firm sells on terms of 3/10, net 30. Total credit sales for the year are $912,500. Forty percent of customers pay on the 10th day and take discount; the rest pay, on average, 40 days after purchase. What is the firm's Days' Sales Outstanding?

Select one:

A. 40 days

B. 30 days

C. 28 days

D. 22 days

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Your firm needs to borrow $50,000 for one year. Which of the following loan options offers the least cost?

Select one:

A. 13.5% simple interest

B. 10.5% discount interest with a 10% compensating balance requirement

C. 12.25% discount interest

D. 11% simple interest with a 20% compensating balance requirement

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Which of the following is/are correct?

Select one:

a. Accruals are free financing in the sense that no explicit interest is paid on accrued liabilities.

b. Both of the above are true.

c. None of the above are true.

d. Accruals are spontaneous but unfortunately due to law and economic forces, firms have little control over the level of these accounts.

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A firm receives an average of $1,400,000 in payments per day. On average, it takes 5 days from the time customers mail payments until the firm is able to receive, process, and deposit them. The firm would like to set up a lockbox collection system that it estimates would reduce float by 3 days. If the firm's cost of capital is 10%, what is the maximum monthly fee the firm can pay?

Select one:

A. $350,000

B. $35,000

C. $23,333

D. $420,000

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Which of the following statements concerning commercial paper is FALSE?

Select one:

A. Commercial paper requires review and approval by the Securities and Exchange Commission

B. Commercial paper is generally written for terms less than 270 days

C. Commercial paper generally carries an interest rate below the prime rate

If easing a firm's credit policy lengthens the collection period and results in a worsening of the aging schedule, then why do firms take such actions?

Select one:

A. It normally stimulates sales

B. To meet competitive pressures

C. To increase the firm's deferral period for payable

D. Both answers 1 and 2 above

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On a typical day a firm writes $10,000 in checks. It generally takes 4 days for these checks to clear. Each day the firm typically receives $10,000 in checks that take 3 days to clear. What is the firm??s net float?

Select one:

A. $ 30,000 negative

B. $10, 000 negative

C. $10,000 positive

D. $40,000 positive

Question 8

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A firm has decided to offer an early payment discount for the first time in order to stimulate sales. None of the local competitors offer a discount. Which of the following early payment discount scheme should it choose?

Select one:

A. 2/12, net 35

B. 3/10, net 50

C. 2/10, net 45

D. 1/15, net 30

Question 9

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Which of the following is/are correct?

Select one:

a. Both of the above are true.

b. None of the above are true.

c. Accounts receivable can be sold to a third party to generate immediate cash flow.

d. Accounts receivable can used as collateral for a loan through a process called recourse.

Question 10

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Inventory financing can take the form of a

Select one:

A. blanket lien

B. trust receipt

C. warehouse receipt

D. all of the above

D. Commercial paper is a type of unsecured promissory note issued by large, strong firms.