BU 440 BU440 EXAM 5 ANSWERS - ASHWORTH

BU 440 BU440 EXAM 5 ANSWERS - ASHWORTH

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BU440 Managerial Finance II Exam 5 Answers
Question 21

2.5 / 2.5 points
Travel and Tow Trailers, Inc., makes small trailers for light-duty towing behind SUVs and small pickup trucks. Its trailers typically sell for $2,500. Many of its customers have asked for credit terms to aid in purchasing the trailers. The firm's finance department has estimated the following profile for its light-duty trailers and customer base:
      Annual sales:                                                                     10,000 trailers
      Annual production costs per trailer:                                 $1,500
      Lost sales if credit is not provided for customers:            2,000 trailers
      Default rate if all customers purchase on credit:              3%
 
What is the dollar value of bad debts the firm expects to accumulate over a year?
Question options:
a) 
$9,250,000

b) 
$4,500,000

c) 
$8,000,000

d) 
$450,000

Question 22

2.5 / 2.5 points
The Hannibal Homers minor league baseball club is considering an expansion of its stadium to increase capacity by 2,000 seats. Management estimates increased revenue from ticket and concession sales to $600,000 per year for the next five years. The cost of expansion is $750,000, with an additional $50,000 in working capital. The working capital increase is permanent (that is, it will not be recovered after five years). Annual costs are expected to increase by $200,000 per year, the club's cost of capital is 14%, and its tax rate is 30%. If the stadium addition is depreciated in a straight line to a value of $0.00 over five years, what is the IRR of this project? (Ignore any revenues or costs associated with a terminal value of the project after five years.) Use a financial calculator to determine your answer.
Question options:
a) 
9.41%

b) 
14.00%

c) 
25.33%

d) 
29.45%

Question 23

2.5 / 2.5 points
Extending credit to a customer has three major components:
Question options:
a) 
a policy on how customers will qualify for credit, a policy on the payment plan allowed creditors, and a policy for collecting overdue bills.

b) 
a policy on how customers will qualify for credit, a policy on paying commissions on sales, and a policy for collecting overdue bills.

c) 
a policy on how customers will qualify for credit, a policy on the payment plan allowed creditors, and a policy on accounting for depreciation.

d) 
a policy on how customers will qualify for credit, a policy on accounting for depreciation, and a policy on paying commissions on sales.

Question 24

2.5 / 2.5 points
Float, from the buyer's perspective, is called __________ float, and from the seller's perspective is called __________ float.
Question options:
a) 
financing; crediting

b) 
disbursement; collection

c) 
crediting; financing

d) 
collection; disbursement

Question 25

2.5 / 2.5 points
Which of the following is NOT true of the cash conversion cycle?
Question options:
a) 
It is the net period from the start of cash outflow for producing a product or service until the associated cash inflow materializes from the sale of that product or service.

b) 
Cash conversion cycle = production cycle + collection cycle – payment cycle

c) 
Cash conversion cycle = production cycle + collection cycle + payment cycle

d) 
The cash conversion cycle essentially measures how quickly a company can convert its products or services into cash.

Question 26

2.5 / 2.5 points
When a company deals only in cash, the cash conversion cycle becomes the ________ cycle.
Question options:
a) 
collection

b) 
payable

c) 
production

d) 
credit

Question 27

2.5 / 2.5 points
Jolly Roger Kite Company has a payment cycle of 17 days, a collection cycle of 31 days, and a production cycle of 12 days. What is the average cash conversion cycle for the Jolly Roger Kite Company?
Question options:
a) 
2 days

b) 
36 days

c) 
26 days

d) 
60 days

Question 28

2.5 / 2.5 points
EOQ focuses on the tradeoff between:
Question options:
a) 
carrying costs and delivery costs.

b) 
seasonality and steady production.

c) 
carrying costs and ordering costs.

d) 
fixed and variable costs.

Question 29

2.5 / 2.5 points
The _________ cycle starts at the time production begins and ends with the collection of cash from the sale of the product.
Question options:
a) 
accounts receivable

b) 
business operating

c) 
cash conversion

d) 
production 

Question 30

2.5 / 2.5 points
BarnBurner Music, a music publishing firm in Tennessee, bills its clients on the first of the month. For example, any sale made in the month of July is billed August 1 and is due September 1. Clients traditionally pay as follows: 50% at the end of the first month, 40% at the end of the second month, 8% at the end of the third month, and 2% default on their bills. What is the dollar value of January billings collected in April?
 
First Quarter Actual Billings
Second Quarter Anticipated Billings
January
February
March
April
May
June
$88,000
$74,000
$96,000
$99,000
$82,000
$63,000
Question options:
a) 
$7,040

b) 
$29,600

c) 
$5,920

d) 
$0.00

Question 31

2.5 / 2.5 points
Estimating _________ is one part of managing short-term cash needs. The second part is estimating __________.
Question options:
a) 
cash inflow; accounts payable

b) 
cash inflow; cash outflow

c) 
accounts receivable; cash outflow

d) 
accounts receivable; cash inflow

Question 32

2.5 / 2.5 points
__________ is the collective term used to describe a firm's decisions as to how customers will qualify for credit, what payment plan is allowed to creditors, and how overdue bills will be collected.
Question options:
a) 
Credit history

b) 
Credit policy

c) 
Collection policy

d) 
Payment policy

Question 33

2.5 / 2.5 points
EOQ equals:
Question options:
a) 
 ÷ 2

b) 

c) 
 ÷ 2

d) 

Question 34

2.5 / 2.5 points
__________ is additional inventory kept on hand so if an order is delayed in arrival the current inventory is sufficient to cover the delay.
Question options:
a) 
Excess inventory

b) 
Safety stock

c) 
Stock overage

d) 
Type A

Question 35

2.5 / 2.5 points
The _________ cycle begins at the time a firm first starts to make a product and lasts until the time the customer buys the product.
Question options:
a) 
business operating

b) 
accounts receivable

c) 
cash conversion

d) 
production 

Question 36

2.5 / 2.5 points
Under __________, companies work with both their suppliers and their customers to reduce the time items are in inventory and the amount of inventory carried by a company.
Question options:
a) 
ABC inventory management

b) 
EOQ inventory management

c) 
federal procurement programs

d) 
JIT inventory management 

Question 37

2.5 / 2.5 points
Which of the following is NOT an inventory management technique?
Question options:
a) 
ABC

b) 
SIX SIGMA

c) 
JIT

d) 
EOQ

Question 38

2.5 / 2.5 points
Ready Tees, an online retailer of t-shirts, orders 100,000 t-shirts per year from its manufacturer. The cost of ordering and delivery is $100 per order. If Ready Tees orders 6,667 t-shirts in each order, what are the firm's total annual ordering costs (rounded to the nearest dollar)?
Question options:
a) 
$2,000

b) 
$1,500

c) 
$1,000

d) 
$667

Question 39

2.5 / 2.5 points
Of the following items, which would be considered working capital rather than a capital asset?
Question options:
a) 
Disposable parts that aid in installation and are shipped with each sale

b) 
A CAD/CAM machine used in the manufacturing process

c) 
An addition to the existing building designed to facilitate a new product line

d) 
None of the above are working capital assets.

Question 40

2.5 / 2.5 points
A __________ inventory item is an item not used in current operations but is serving a backup role in case the current item fails during operation.
Question options:
a) 
Category C

b) 
redundant

c) 
reticent

d) 
beta generation


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