Problem 1: What is the conventional method for financing permanent levels of accounts receivable and inventory ?
a. bonds and equity
b. equity only
c. short-term loans
d. accounts payable and accrued expenses
Problem 2: Which of the following would increase cash flow for a firm ?
a. cash sales
b. purchase of market securities
c. credit sales
d. purchase of fixed assets
Problem 3: An investor in the 23% tax bracket is considering the following three investments. All three bonds mature in 10 years. Which bond has the highest before-tax yield?
a. City of Sacramento, California Municipal Bond 10&
b. City of Denver, Colorado Municipal Bond 6%
c. United States Treasury Bond 8%
d. Federal Home Loan Bank Board Collateralized Mortgage Obligation (CMO) Pass-Through Certificate 7.6%
Problem 4: Enzyme-o-mine Drug Company is considering the merits of investing temporarily excess cash balances in either 90-day U.S. Treasury Bills or 1-year U.S. Treasury Notes. If market interest rates rise over the next year, both investments will decline in value if they are sold prior to maturity. This previous illustration represents an example of the following ?
a. flotation risk
b. interest rate risk
c. financial risk
d. Purchasing Power Parity
Use the data listed below to answer below:
Assume that your firm is considering relaxing its current credit policy. Currently the firm has annual sales (all on credit) of $16 million and a average collection period of 30 days. The firm is considering a change in credit terms from the current terms of "net 30" to "1 /10 - net 30". The change is expected to generate additional sales of $2 million. the firm has variable cost of 75% of the selling price. The information provided below - plus additional information is summarized in the table below:
New Sales (all credit) $18,000,000
Original Sales (all credit) $16,000,000
Contribution Margin 25%
% Bad Debt on New Sales 6%
New Average Collection Period 45 days
Original Average Collection Period 30 days
Additional Inventory Investment $50,000
Pre-Tax Required Rate of Return 15%
New % Cash Discount 1%
% of Customers taking Discount 50%
Problem 5: If the credit policy change is made, the changes in the cost of the cash discount will be:
a. $90,000
b. $80,000
c. $110,000
d. $100,00
Problem 6: If the credit policy change is made, the change in profit will be:
a. $380,000
b. $200,000
c. $400,000
d. $550,000
Problem 7: If a firm offers credit terms of 2/10, net 30, the annualized opportunity cost of it customers foregoing the discount is:
a. 36.73%
b. 18.31%
c. 24.49%
d. 20.04%
Problem 8: Which of the following credit terms has the highest annualized cost for foregoing the trade discount ?
a. 1 /10, net 20
b. 1 / 10, net 40
c. 2 / 20, net 90
d. 2 / 10, net 80
Problem 9: A company-wide systems approach to quality is called:
a. Total Quality Management (TQM)
b. Economic Order Quantity (EOQ) Management
c. Single-Sourcing Management
d. Just-In-Time Management
Problem 10: Which of the following is a conceptual method for keeping the foreign currency market in equilibrium ?
(Suggestion - Check the Presentation Slides relating to Foreign Currency transactions)
a. government direct intervention through a central bank
b. the purchasing power parity mechanisms
c. The interest rate power parity mechanisms
d. the balance of trade mechanisms
Problem 11: A Multinational Corporation (MNC):
a. produces a product within its own borders but sells it through independent importers in a foreign market
b. produces a product within its own borders and sells it through its marketing subsidiaries located in foreign countries
c. is willing to commit itself to a long-term foreign investment
d. both a) and b)
e. both a) and c)
f. all of the above
g. none of the above