ECON 102 QUIZ 2 QUESTIONS AND ANSWERS
25. When using the economic order quantity model
A) ordering costs increase as the level of inventory increases.
B) carrying costs decrease as the level of inventory increases.
C) costs are minimized when total carrying costs and total ordering costs are
equal.
D) none of the above
Difficulty: Medium Type: Conceptual
26. Hedging
A) is a way to protect your accounts receivable position.
B) increases risk.
C) is a legal agreement to buy or sell a financial futures contract.
D) can be carried out with a futures contract.
Difficulty: Medium Type: Conceptual
27. Which of the following is not a true statement about commercial paper?
A) Finance paper is sold directly to the lender by the finance company.
B) Finance paper is also referred to as direct paper.
C) Dealer paper is sold directly to the lender by a finance company.
D) Industrial companies, utility firms or finance companies too small to sell
, direct paper sell dealer paper.
Difficulty: Medium Type: Memorization
28. Which of the following best describes the benefits to the borrower of
selling asset backed securities?
A) Due to the portfolio effect, the borrower can package up low quality
accounts receivable and sell them for a premium price.
B) The borrower trades future cash flows for current cash flows.
C) The asset-backed security is likely to carry a high credit rating of AA or
better.
D) b and c are correct.
Difficulty: Easy Type: Conceptual
29. Price Corp. is considering selling to a group of new customers and creating
new annual sales of $70,000. 5% will be uncollectible. The collection cost on
these accounts is 3.5% of new sales, the cost of producing and selling is 80%
of sales and the firm is in the 31% tax bracket. What is the profit on new
sales?
A) $5,554.50
B) $9,660.00
C) $7,245.00
D) none of the above.
25. When using the economic order quantity model
A) ordering costs increase as the level of inventory increases.
B) carrying costs decrease as the level of inventory increases.
C) costs are minimized when total carrying costs and total ordering costs are
equal.
D) none of the above
Difficulty: Medium Type: Conceptual
26. Hedging
A) is a way to protect your accounts receivable position.
B) increases risk.
C) is a legal agreement to buy or sell a financial futures contract.
D) can be carried out with a futures contract.
Difficulty: Medium Type: Conceptual
27. Which of the following is not a true statement about commercial paper?
A) Finance paper is sold directly to the lender by the finance company.
B) Finance paper is also referred to as direct paper.
C) Dealer paper is sold directly to the lender by a finance company.
D) Industrial companies, utility firms or finance companies too small to sell
, direct paper sell dealer paper.
Difficulty: Medium Type: Memorization
28. Which of the following best describes the benefits to the borrower of
selling asset backed securities?
A) Due to the portfolio effect, the borrower can package up low quality
accounts receivable and sell them for a premium price.
B) The borrower trades future cash flows for current cash flows.
C) The asset-backed security is likely to carry a high credit rating of AA or
better.
D) b and c are correct.
Difficulty: Easy Type: Conceptual
29. Price Corp. is considering selling to a group of new customers and creating
new annual sales of $70,000. 5% will be uncollectible. The collection cost on
these accounts is 3.5% of new sales, the cost of producing and selling is 80%
of sales and the firm is in the 31% tax bracket. What is the profit on new
sales?
A) $5,554.50
B) $9,660.00
C) $7,245.00
D) none of the above.
