FIN 338 – S09 – EXAM 3 1
NAME: _________________________________________________
PART I: Conceptual/Multiple Choice – 10 questions/1 points each = 10 points
1. The difference between Total Assets of a firm and its Total Liabilities is called.
a. Net working capital
b. Net current assets
c. Net worth
d. None of the above
2. When a firm improves (lowers) its average collection period it generally:
a. Requires additional cash investment in inventory
b. Releases cash locked up in accounts receivables
c. Does not alter its cash position
d. Reduces inventories
3. If a firm grants credit with terms of 3/10 net 30, the creditor:
a. Must pay a penalty of 3% when payment is made in more than 10 days after the sale
b. Must pay a penalty for 10% when payment is made in more than 3 days after the sale
c. Receives a discount of 3% when payment is made in less than 10 days after the sale
d. Receives a discount of 10% when payment is made in less than 3 days after the sale
4. When credit is offered with only the invoice as a formal instrument of credit, the credit
procedure is called an:
a. Invoice account
b. Open account
c. Unsecured account
d. Unsecured note
5. Factoring refers to:
a. Determining the aging schedule of the firm's accounts receivable
b. The sale of a firm's accounts receivable to another firm
c. The determination of the average collection period
d. Scoring a customer based on the 5 C's of credit
6. A large firm may hold substantial cash balances because:
a. These balances are required by the bank in the form of compensating balances
b. The company may have accounts in many different banks
c. The company may have a very decentralized organization
d. All of the above
