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7. Explain why the bad debt percentage or any other similar credit-control percentage is not the ultimate measure of success in the management of accounts receivable. What is the key consideration?

8. What are three quantitative measures that can be applied to the collection policy of the firm?

9. What does the EOQ formula tell us? What assumption is made about the usage rate for inventory?

10. A borrower is often confronted with a stated interest rate and an effective interest rate. What is the difference, and which one should the financial manager recognize as the true cost of borrowing?

11. What is the difference between pledging accounts receivable and factoring accounts receivable?

12. What is meant by hedging in the financial futures market to offset interest rate risks?

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7. Explain why the bad debt percentage or any other similar credit-control percentage is not the ultimate measure of success in the management of accounts receivable. What is the key consideration?

The bad debt percentage or any other similar credit-control percentage is not the ultimate measure of success in the management of accounts receivable because there is it gives only a general overview of how the firm manage their accounts receivable. Therefore, the firm should also consider the aging schedule, debtors turnover, accounts receivable to revenue ratio, and percentage of debts collected within terms of trade.

8. What are three quantitative measures that can be applied to the collection policy of the firm?

The first quantitative measure is the aging schedule which will break down a firm's receivables by age of account. Aging schedules cannot be constructed from the type of summary date reported in financial statements. They must be developed from the firm's accounts receivable ledger.
The second quantitative measure is the debtors turnover. This ratio measures the average period for which sales revenue will be held in accounts receivable. This measures the efficiency and effectiveness of receivables collection.
The third ...

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Answers to Various Financial Questions

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According to Tim, "It's hard to believe, but we don't even have a savings account because we spend almost everything we make." Every month, they deposit each of their paychecks in separate checking accounts. Tim pays the rent and makes the car payment. Pam buys the groceries and pays the utilities. They use the money left over to purchase new clothes and the other "necessities" for enjoying life.
In an effort to make wise use of credit, the Turner have examined various sources that could serve their current and future financial needs. In the assessment process, they compared the APR along with various fees and potential charges.
Tim and Jenny are also learning about various actions that might be useful if they encounter credit troubles. Their discussions with friends and money management advisers provided expanded knowledge of credit counseling and bankruptcy alternatives.
Life Situation Financial Data
Recently Married
Pam, 26
Josh, 28
Renting an Apartment Monthly income $5,840
Living expenses $3,900
Assets $13,500
Liabilities $4,800
Emergency fund $1,000

Q1. What is the minimum amount that the Turner should have in an emergency fund? What actions might be taken to increase the amount in this fund?

1. Lucy lacks cash to pay for a $720 dishwasher. She could buy it from the store on credit by making 12 monthly payments of $65. The total cost would then be $780. Instead, Lucy decides to deposit $60 a month in the bank until she has saved enough money to pay cash for the dishwasher. One year later, she has saved $770.40—$720 in deposits plus interest. When she goes back to the store, she finds the dishwasher now costs $849.60. Its price has gone up 18 percent, the current rate of inflation.
From the financial standpoint, was postponing her purchase a good trade-off for Lucy?

Yes ___
No ___

2. Malou is trying to decide whether she can afford a loan she needs in order to go to chiropractic school. Right now Malou is living at home and works in a shoe store, earning a gross income of $3250 per month. Her employer deducts a total of $150 for taxes from her monthly pay. Malou also pays $100 on credit card debt each month. The loan she needs for chiropractic school will cost an additional $140 per month.
Calculate her debt payments-to-income ratio without college loan. Remember to convert your answer to a percentage!
Make sure to include zeros and the period in your answer.
Round your answer to 2 decimal places. i.e. 16.55, 12.32
Your Answer: ______

3. Sally is trying to decide whether she can afford a loan she needs in order to go to chiropractic school. Right now Sally is living at home and works in a shoe store, earning a gross income of $2990 per month. Her employer deducts a total of $200 for taxes from her monthly pay. Sally also pays $100 on credit card debt each month. The loan she needs for chiropractic school will cost an additional $100 per month.
Calculate her debt payments-to-income ratio with college loan. Don't forget to convert your answer to a percentage.
Make sure to include zeros and the period in your answer.
Round your answer to 2 decimal places. i.e. 20.12, 31.89
Your Answer: ________
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Round your answer to the nearest whole number.
Your Answer: __________

5. What would be the net annual cost of the following checking account?
Monthly fee : $11.55
Processing fee: $0.64 per check
Checks written: Average of 78 a month
Round your answer to the nearest whole number.
Your Answer:_______

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