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 […]
A relaxation of credit standards is expected to affect profits positively due to lower carrying costs, whereas tightening credit standards would affect profits negatively as a result of higher carrying costs. Indicate whether the statement is true or false ANSWER FALSE
The increase in bad debts associated with tightening credit standards raises bad debt expenses and has a negative impact on profits. Indicate whether the statement is true or false ANSWER FALSE
The cost of marginal investment in accounts receivable can be calculated by finding the difference between the average investment in accounts receivable before and after the introduction of the changes in credit standards. Indicate whether the statement is true or false ANSWER FALSE
The cost of marginal bad debts is found by multiplying a firm’s opportunity cost by the difference between the level of bad debts before and after the relaxation of credit standards. Indicate whether the statement is true or false ANSWER FALSE
_ has become an important means by which huge infrastructure projects are privately financed. a. Private placement financing b. Infrastructure funding c. Project finance d. Country finance ANSWER C
By increasing collection expenditures, a firm can decrease bad debt losses up to a point, beyond which bad debts cannot be economically reduced. Indicate whether the statement is true or false ANSWER TRUE
The average investment of a firm in accounts receivable is equal to the firm’s total variable cost of annual sales divided by its average collection period. Indicate whether the statement is true or false ANSWER FALSE
In analyzing an applicant’s creditworthiness, a credit manager typically gives primary attention to two of the five C’s of credit—collateral and condition—since they represent the most basic requirements for extending credit to an applicant. Indicate whether the statement is true or false ANSWER FALSE
If a gold producer wishes to employ a non-contingent hedge, it should use a(n) (i) contract, while if it wishes to employ a contingent hedge (i.e., to hedge only down-side risk), it should use a(n) (ii) contract. (i) (ii) a. forward put option b. put option forward c. forward call option d. call option forward […]
