1. Which one of the following is a speculative motive for holding cash?

a. Contributing $1,000 to help fund medical care for an uninsured neighbor

b. Buying extra inventory because a key supplier offered a special one-time discount

c. Needing to purchase a new delivery truck because the old one was totally destroyed in an accident

d. Paying a $100 bonus to all employees at year end

e. Paying the annual insurance premium on the firm's assets

2.  Which of the following are carrying costs of granting credit?

I. the losses incurred when customers do not pay

II. required return on receivables

III. costs of the credit application process

IV. costs expended in the collection process

a. I and IV only

b. II, III, and IV only

c. I, II, III, and IV

d. I, II, and III only

e. II and III only

3. The Flowering Vine buys hanging plants for $2 each and resells them for $8.95 each. The firm sells 3,500 plants per year. Generally, the firm orders 400 plants at a time and has a fixed cost per order of $28. The carrying cost per unit is $1.16. To avoid newer plants mixing with older plants, the inventory is totally sold out before it is restocked. The total annual carrying cost is ____ and the total annual restocking cost is _____.

a. $211; $245

b. $232; $245

c. $211; $269

d. $232; $269

e. $232; $256

4. A windshield is a _____ when it leaves the production line but is a _____ when installed on a partially-built vehicle

a. raw material; work-in-progress

b. finished good; raw material

c. finished good; work-in-progress

d. raw material; finished good

e. work-in-progress; finished good

5. Southern Mills sells handmade cotton goods to national retail chains, to regional wholesale firms, and to small specialty shops. You would expect Southern Mills to:

a. lengthen its normal credit period for a small specialty shop that is experiencing financial distress.

b. demand a shorter credit period for any new product it brings to market.

c. offer the least favorable credit terms to the small specialty shops.

d. offer the same credit terms to both the national retailers and the small specialty shops.

e. offer longer credit periods in the geographic areas that represent the least competitive markets.