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31) Which of the following a major external source of

Question : 31) Which of the following a major external source of : 1415273

 

31) Which of the following is a major external source of credit information?

A) suppliers

B) bank checking

C) customers

D) distributors

32) Which of the following is true of credit scoring of suppliers?

A) It is frequently used in business because the scoring information is easy to obtain.

B) It is frequently used in business because scoring standards are too flexible.

C) It is frequently not used in business because most business transactions involve mercantile credit which cannot be scored.

D) It is frequently used in business because mercantile credit decisions are easily quantifiable.

33) Which of the following is true of a credit applicant's character?

A) It reflects a credit applicant's ability to repay his debt obligation.

B) It reflects a credit applicant's past payment history.

C) It reflects the level of liquid assets available with a credit applicant.

D) It reflects any unique conditions surrounding a credit applicant's transaction.

34) As credit standards are relaxed, sales are expected to ________ and the investment in accounts receivable is expected to ________.

A) increase; increase

B) increase; decrease

C) decrease; decrease

D) decrease; increase

35) As credit standards are tightened, sales are expected to ________ and the investment in accounts receivable is expected to ________.

A) increase; increase

B) increase; decrease

C) decrease; decrease

D) decrease; increase

36) Which of the following major variables should be considered when evaluating proposed changes in credit standards?

A) level of inventories

B) accounts payable

C) level of liquid assets

D) bad debt expenses

37) An applicant's capacity to repay its requested credit can be found by ________.

A) analyzing financial statements

B) checking bank account balances

C) analyzing tax payment history

D) checking the covenants

38) A firm is analyzing a relaxation of credit standards that is expected to increase sales 10 percent. The firm is currently selling 400 units at an average sale price per unit of $575, and the variable cost per unit is $400 at the current sales volume. The average cost per unit is $425. What is the additional profit contribution from sales if credit standards are relaxed?

A) $23,000

B) $16,000

C) $6,000

D) $7,000

39) When a firm's credit standards is relaxed ________.

A) its sales is expected to decrease with corresponding increase in costs

B) its costs is expected to decrease with corresponding decrease in sales

C) its costs is expected to increase faster than sales if the standards are not relaxed

D) its profit contribution from sales will be greater than the cost contribution

Table 14.5

Caren's Canoes is considering relaxing its credit standards to encourage more sales. As a result, sales are expected to increase 15 percent from 300 canoes per year to 345 canoes per year. The average collection period is expected to increase to 40 days from 30 days and bad debts are expected to double the current 1 percent level. The price per canoe is $850, the variable cost per canoe is $650 and the average cost per unit at the 300 unit level is $700. The firm's required return on investment is 20 percent. (Assume a 360-day year)

40) What is the firm's additional profit contribution from sales under the proposed relaxation of credit standards? (See Table 14.5)

A) $2,250

B) $6,750

C) $9,000

D) $69,000

 

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