correct answer for each question is indicated by a

1 INCORRECT

The terms of sale generally include which of the following? I. type of credit instrument II. cash price III. cash discount IV. credit period A) B) C) D) I and III only II and IV only I, II, and III only I, III, and IV only

I, II, III, and IV E) Feedback: The credit period is also part of the terms of sale. Review section 28.1

2 CORRECT

Credit terms of 2/5, net 15 mean a customer will receive a discount of: A) B) C) D) 2 percent if she pays within 5 days. 2 to 5 percent is she pays within 15 days. 20 percent if she pays within 15 days. 40 percent if she pays within 15 days.

5 percent if she pays within 2 days. E) Feedback: You are correct!

3 INCORRECT

Westover Industries ordered $132,600 of inventory from a supplier with credit terms of 3/10, net 20. How much will Westover Industries need to pay if they pay this invoice in 15 days? A) B) C) D) $119,340 $127,296 $128,622 $130,611

$132,600 E) Feedback: The firm owes $132,600 if payment is made after 10 days. Review section 28.1.

4 INCORRECT

Snow Shovel Central sells it products to retail outlets during the early fall season. The firm offers terms of 2/15, net 45, January 1 dating. Delta Hardware purchased $500 of snow shovels from Snow Shovel Central on November 1. What is the last day that Delta Hardware can pay for this

purchase without being delinquent? A) B) C) D) December 15 January 1 January 15 February 15

February 28 E) Feedback: The invoice date is January 1. Review section 28.1.

5 INCORRECT

Which one of the following statements is correct? Customers who are the most apt to not pay their invoices are given the A) longest credit periods. B) Firms tend to offer the same credit terms to all customers.

Customers in high-risk businesses tend to receive the most favorable C) credit terms offered by a supplier. D) Customers effectively pay less when the credit period is extended. The more perishable the product, the longer the credit period tends to E) be. Feedback: Customers who are most apt to not pay are given short, if any, credit periods. Review section 28.1.

6 INCORRECT

Spitzer Industries just ordered $23,800 worth of merchandise from you. In the past, Spitzer Industries paid in 30 days. However, you just changed your credit terms to 2/10, net 30. What is the cost of the discount to you for this order if your cost of debt capital is 9 percent and Spitzer pays in 10 days? A) B) C) D) $346.13 $347.92 $358.61 $363.18

$476.00 E) Feedback: The present value of the sale without the discount is $23,625.24 and with the discount it is $23,266.63. Review section 28.1.

7 CORRECT

Charter Mills has a net 20 sales policy. Denver Fabric has requested a onetime discount be granted if they place an order in the amount of $120,000. The requested discount is 2.5 percent for payment within 7 days. Generally, Denver Fabric pays in 20 days. What will it cost Charter Mills to offer the requested discount if the firm's cost of debt capital is 10 percent? A) $2,570.00 $2,666.67

B) C) D) $2,820.00 $3,000.00

$3,005.75 E) Feedback: You are correct!

8 INCORRECT

Coastline Suppliers has a cost of debt capital of 11 percent, a standard credit policy of net 25, and variable costs per order of $0.72 per dollar of sales. Kaiser Mills will place an order for $15,000 under the present credit terms but has offered to increase the order to $18,000 if a discount of 3 percent for payment within 7 days is granted. What is the net effect on the present value of this order if the discount is offered? A) B) C) D) -$1,021.18 -$479.68 $123.64 $375.41

$631.96 E) Feedback: The present value of the order without the discount is $4,087.83 and with the discount it is $4,463.24. Review section 28.1.

9 INCORRECT

Jesse is the credit manager for Windwood. Their best customer, Zavier, places an average order of $387,000 and pays for these purchases in 28 days. Jesse knows with relative certainty that sales to Zavier will increase by 6 percent if this customer were granted credit terms of 2/10, net 28. Jesse has computed Windwood's variable costs per sale at $0.63 per sales dollar and its cost of debt capital as 9 percent. What is the amount of the change in the present value of the order if the discount is offered? A) B) C) D) $1,828.58 $1,899.70 $2,051.74 $2,311.17

$2,414.14 E) Feedback: The present value without the discount is $140,536.43 and with the discount it is $142,588.17. Review section 28.1.

10 CORRECT

Mark is the credit manager for Stifler Co. Their best customer, Allen Gee's, places an average order of $74,000 and pays for these purchases in 32 days. Mark knows with relative certainty that sales to Allen Gee's will increase by 4 percent if this customer is granted credit terms of 3/5, net 32. Mark has computed Stifler Co.'s variable costs per sale at $0.68 per sales dollar and its cost of debt capital as 8 percent. What is the change in the present value of each order from Allen Gee's if the credit terms are changed?

A) B) C) D)

-$927.92 -$418.27 -$101.13 $210.19

$1,014.68 E) Feedback: You are correct!