Question 1

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Place the following steps for developing a credit policy in the correct order of process:

• A: The company decides that it will contact customers by phone if they are late on a payment.
• B: The company decides that it will not require customers to undergo a credit check.
• C: The company decides that it will reward loyal customers with a discount for early payment.
• C, A, B
• C, B, A
• B, C, A
• B, A, C

Question 2

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What can a business that has too little working capital do to increase it?

• Increase short-term liabilities
• Reduce current assets
• Decrease inventory
• Increase cash on hand

Question 3

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Select a reason why a company would want to go public.

• To consolidate control of the company in the hands of management
• To increase direct oversight from investors
• To decrease administrative costs
• To have access to cheaper capital than a private company would

Question 4

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Which of the following is an example of a market risk for a company that manufactures automobiles?

• A competitor that offers a similar line of cars with comparable quality at lower prices
• Damage to completed cars being transported to a buyer
• A failure in the company's accounts receivable process
• Being suddenly unable to source a critical component of the automobile

Question 5

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A company invests $750,000 in a project with the following net cash flows:

• Year 1: $43,000
• Year 2: $48,000
• Year 3: $55,000
• Year 4: $36,000
• Year 5: $74,000
• Year 6: $65,000

In what year does payback occur?

• Year 6
• After Year 6
• Year 4
• Year 5

Question 6

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Kiran needs additional short-term financing for his robotics company, so he asks his suppliers if they could issue a discount if he pays his bills early.

What type of financing resource is Kiran using?

• Peer-to-peer lending
• Barter
• Factoring
• Trade credit

Question 7

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What type of inventory does paint that has been colored but not yet put into cans represent for a paint company?

• Work in process
• Raw materials
• Finished goods
• Class C

Question 8

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Determine whether the following description is true of a capital lease, an operating lease, neither or both.

"A commercial financing agreement wherein a company may purchase the leased asset at a discount when the lease ends"

• Capital lease
• Operating lease
• Both
• Neither

Question 9

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Select one advantage of IRR as a capital budget method.

• It is more useful than NPV analysis when evaluating mutually exclusive projects.
• It accurately reflects the reinvestment rate risk.
• It is simple to understand because it ignores the time value of money.
• The IRR can easily be evaluated alongside a company's threshold rate.

Question 10

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According to the residual dividend model, what takes priority over distributing dividends?

• Increasing share price
• Paying off debt
• Financing planned projects
• Establishing a target payout ratio

Question 11

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Farrah owns 500 shares of stock valued at $30/share in Company A.

After the company issues a 3% stock dividend, what does Farrah own?

• 500 shares valued at $30/share
• 515 shares valued at $29.13/share
• 515 shares valued at $30/share
• 500 shares valued at $30.90/share

Question 12

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To manage cash efficiently, a company should try to collect payment for delivered products or services __________.

• within 60 days
• in a way that maximizes float time
• infrequently
• as quickly as possible