Chapter 19 MC - CHAPTER NINETEEN Multiple Choice Questions...

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CHAPTER NINETEEN Multiple Choice Questions 19-1. With respect to offering credit terms to customers, which of the following statements is most correct? a. offering less credit decreases sales but increases costs b. offering more credit increases sales but increases costs c. offering more credit increases sales but decreases costs d. offering less credit increases sales but increases costs 19-2. Accounts receivable and inventory: a. tie up funds but earn only short-term lower rates b. have opportunity costs c. can not be bought and sold d. tie up funds, have opportunity costs, and may add to the firm’s long-term value 19-3. With respect to deciding upon the optimal accounts receivable levels which of the following would not impact your decision? a. bad debts b. opportunity costs from foregone investments c. sales that increase as more products become available d. sales increases with changes in credit terms 19-4. A firm’s credit policy is best described as: a. a firm’s credit terms and credit standards b. a firm’s credit terms, credit standards, and factoring c. a firm’s credit terms d. a decision as to whom to offer credit 19-5. Tightening the credit policy will most likely: a. shorten the ACP and cause accounts receivable levels to rise b. lengthen the ACP and cause accounts receivable levels to rise c. shorten the ACP and cause accounts receivable levels to fall d. lengthen the ACP and cause accounts receivable levels to fall 234
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Use the following information to answer questions 19-6 through 19-9. A firm currently offers credit terms of 2/10, n/30. You want to change the credit policy to 2/10, n/35. As a result of this change, sales are expected to rise by 15%; bad debts will rise from 1% to 3% of sales. All sales are credit sales. Currently 30% of customers pay off their accounts in 10 days with 69% paying in 30 days and 1% paying in 100 days. The change will not affect the 30% paying early but is expected to increase the 1% late payers to 3%. Assume: 365 day year 8% cost of capital Operating expenses change as a percentage of sales Taxes are at the 40% rate Interest expense will drop by $1,000 Income Statement before credit change Sales $200,000 COGS 120,000 Gross Profit 80,000 Bad debts expense 2,000 Operating expenses 40,000 EBIT 38,000 Interest expense 2,000 EBT 36,000 Taxes 14,400 Net Profit $ 21,600 Balance Sheet Before change Cash $30,000 Accounts Receivable 13,534 Inventory 25,600 235
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19-6. Calculate the change between the old and new accounts receivable collection
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This note was uploaded on 01/21/2011 for the course ACC 452 taught by Professor Mr.cula during the Spring '10 term at Abraham Baldwin Agricultural College.

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Chapter 19 MC - CHAPTER NINETEEN Multiple Choice Questions...

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