FINANCE

15. On September 1, a firm grants credit with terms of 2/10 net 45. The creditor:

A. must pay a penalty of 2% when payment is made later than September 1st.

B. must pay a penalty of 10% when payment is made later than 2 days after September 1st.

C. receives a discount of 2% when payment is made at least 10 days before September 1st.

D. receives a discount of 2% when payment is made before September 1st and pays a penalty of 10% if payment is made after September 1st.

E. receives a discount of 2% when payment is made within 10 days after the effective invoice date of September 1st.

 

 

16. The Tate Corporation has annual sales of $47 million. The average collection period is 36days. What is the average investment in accounts receivables as shown on the balance sheet?

A. $4,730,520

B. $4,635,616

C. $4,835,400

D. $4,563,116

E. $4,653,616

 

Solution: Computation of the average investment in accounts receivables

 

Collection period -365

A/R Turn over

 

A/R Turn over365

36

 

A/R Turn over10.13888889

 

Account Receivable RatioSales

Avg Account Receivable

Where as

Sales $                         47,000,000

Avg Account Receivable

Account Receivable Ratio10.13888889

 

 

Avg Account Receivable $                         47,000,000

10.13888889

 

Avg Account Receivable                        4,635,616.44

 

17. Lipman, Inc., has an average collection period of 39 days. Its average daily investment in receivables is $47,500. What are annual credit sales? What is receivable turnover?

A. $444,555; 9.4

B. $446,551; 8.8

C. $444,940; 5.5

D. $444,551; 9.4

E. $444,515; 8.8

Solution: Computation of the Annual Credit Sales and Account Receivable Turn over

Collection period -365

A/R Turn over

 

A/R Turn over365

39

 

A/R Turn over9.358974359

 

Account Receivable RatioSales

Avg Account Receivable

Where as

Sales

Avg Account Receivable $                                 47,500

Account Receivable Ratio9.358974359

 

 

Sales $                               444,551

 

 

 

 

18. Suppose the current exchange rate for the Polish zloty is Z 4.27. The expected exchange rate in three years is Z 4.51. What is the difference in the annual inflation rates for the United States and Poland over this period? Assume the anticipated rate is constant for both countries. What relationship are you relying on in answering this question?

A. 1.51

B. 1.84

C. 1.48

D. 1.15

E. 1.86

 

Solution:

Time value of money Calculator: PV is 4.27, FV is -4.51, n is 3, payment is 0, end of period, solve for interest rate and get 1.84.

 

 

19. An efficient capital market is one in which:

A. brokerage commissions are zero.

B. taxes are irrelevant.

C. securities always offer a positive rate of return to investors.

D. security prices are guaranteed by the U.S. Securities and Exchange Commission to be fair.

E. security prices reflect available information.

 

20. In an efficient market when a firm makes an announcement of a new product or product enhancement with superior technology providing positive NPV, the price of the stock will:

A. rise gradually over the next few days.

B. decline gradually over the next few days.

C. rise on the same day to the new price.

D. stay at the same price, with no net effect.

E. drop on the same day to the new price.

 

21. Financial managers can create value through financing decisions that:

A. reduce costs or increase subsidies.

B. increase the product prices.

C. create a new security.

D. Both A and B.

E. Both A and C.

 

22. Remitting cash flows is a term used to describe:

A. cash flows earned in a foreign country.

B. moving cash flows from the foreign subsidiary to the parent firm.

C. forecasting the value of foreign currency one-year hence.

D. forecasting the value of U.S. currency one-year hence.

E. None of the above.

 

23. The price of one country’s currency expressed in terms of another country’s currency is:

A. by definition, one unit of currency.

B. the cross inflation rate.

C. the depository rate.

D. the exchange rate.

E. the foreign interest rate.

 

24. The cross rate is the:

A. exchange rate between the U.S. dollar and another currency.

B. exchange rate between two currencies, neither of which is generally the U.S. dollar.

C. rate converting the direct rate into the indirect rate.

D. estimated based on the weighted average cost of capital by the agent at the exchange kiosk.

E. None of the above.

 

25. You are planning a trip to Australia. Your hotel will cost you A$150 per night for five nights. You expect to spend another A$2,000 for meals, tours, souvenirs, and so forth. How much will this trip cost you in U.S. dollars given the following exchange rates?

Country: Australia, U.S $ equivalent: .7004, currency per U.S. $ 1.4278

A. $1,926

B. $2,007

C. $2,782

D. $2,856

E. $3,926

 

Used international currency exchange rate calculator to solve this one

 

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