31) Binder Inc’s credit sales are projected to be $11,680,000 for the year. The company collects its receivables over an average period of 50 days and finances them by borrowing on its bank line of credit at an interest rate of 9%. Management has determined that if it hires another clerk in the receivables department at $32,000 per year, it can reduce average days outstanding for the receivables to 30, the industry average. What should Binder Inc do? A) Hire the clerk and achieve a net savings of $86,400. B) Hire the clerk and achieve a net savings of $54,400. C) Do not hire the clerk as the net cost is $28,260. D) Do not hire the clerk as the net cost is $3,740. E) Hire the clerk and save $123,733. 32) Comfort Ltd. offers customers payment terms on invoices of 2/10, n30. A customer is unable to pay the invoice when received but will have the funds by month end. The customer has the option of borrowing on its 12% line of credit and paying off the invoice or waiting until the end of the 30 days. What should the customer do? A) Borrow the funds on the tenth day and pay the invoice. B) Borrow the funds upon receipt of the invoice and pay immediately. C) Borrow the funds upon receipt and pay in 30 days. D) Wait until the end of the month and pay from the customer’s own cash. E) Wait until month end to borrow the funds and pay the invoice. 33) Comfort Corporation offer its customers payment terms of a 2% discount if they pay in the first 10 days of receiving the invoice or paying the net amount up until 45 days after receipt. If a customer has the option of borrowing from the bank to pay the invoice right away at what interest rate on the borrowings will it make no difference to take the discount or to borrow the money? A) 21.34% B) 12.65% C) 23.45% D) 44.61% E) 18.56% 34) What has been the most popular way of obtaining new financing by Canadian businesses in recent years? A) Bonds. B) Common shares. C) Leases. D) Sale-and-leaseback arrangements. E) Securitization of assets. 35) Which of the following investments would investors generally view as the riskiness? A) Bonds. B) Mortgages. C) Preferred shares. D) Common shares. E) Leases. 36) What does it mean when an investor says she has invested in a twenty-year zero-coupon bond? A) The investor is not receiving any return but the principal is safe for the period. B) The investor does not have to be concerned about investing the interest payments. C) The yield to maturity floats up and down with prevailing rates over the life of the bond. D) The investor receives direct deposits of annual interest payments without clipping coupons. E) The investment is locked in for the twenty year period because the investor cannot sell the bond. 37) Great Systems Inc. (GSI), a publicly-traded company, needs $30 million additional financing to repair its balance sheet and to expand into the cloud computing infrastructure market. Somes of GSI’s balance sheet classification amounts, in millions, are as follows: Current assets $10; Property, plant, and equipment $90; Current liabilities $30; Long term liabilities $35; retained earnings 10. How should GSI raise the needed $30 million? A) Issue 15 year bonds B) Issue preferred shares C) Issue common shares D) Issue a mortgage on the property E) Issue a strip bond 38) Gamesoft Inc. has $100 million in annual credit sales that take an average of 40 days to collect. A) $246,575 B) $460,274 C) $1,095,890 D) $2,610,959 E) $3,000,000 39) Which of the following actions represents the best way to improve a company’s finances in the short term? A) Raise selling prices by 10%. B) Allow customers 5 days longer to pay. C) Pay vendors 5 days earlier than before. D) Decrease union wages by 3%. E) Carry less 5% less inventory. 40) Rocket Potassium Ltd. has $15 million in credit sales per year and on average they are outstanding for 75 days. Each rocket dosage sells for $1,000 and results in a 10% contribution margin. Receivables are financed at a 12% interest rate. Bad debts total $350,000 annually. The accounting department has a new plan by which it estimates it can eliminate half of the bad debts and reduce the collection period by 30 days if it is permitted to hire two collections specialists at a cost of $85,000 per year each. The new plan would result in 2% lost sales. How much better off would the new plan leave Rocket Potassium? A) $122,384 B) $127,384 C) $157,384 D) $297,384 E) $302,384 41) Saskatchewan Potash Ltd. has $20 million in credit sales per year and on average they are outstanding for 55 days. Potash sells for $1,000 per ton and results in a 20% contribution margin. Receivables are financed at a 10% interest rate. Bad debts total $600,000 annually. The accounting department has a new plan by which it estimates it can eliminate three-quarters of the bad debts and reduce the collection period by 25 days if it is permitted to hire one collections specialists at a cost of $105,000 per year. Some sales would be lost due to credit tightening under the new plan. By what percentage would sales have to decline to leave Saskatchewan Potash Ltd. indifferent between the two alternatives.? A) 12.57% B) 13.57% C) 14.57% D) 15.57% E) 16.57% 42) What is the equivalent annual interest rate for purchase made with discount terms of 1/10/n75? A) 3.52% B) 5.81% C) 7.69% D) 15.43% E) 44.35% 43) Which of the following best describes the pecking order theory? A) Dividend are preferable to capital gains. B) Capital gains are preferable to dividends. C) Retained earnings are preferable for long term financing. D) Debt is preferable for long term financing.