BUSI 320 - EXAM 2 - Liberty University 20242025: Questions and Verified Answers, Exams of Business Systems

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BUSI 320 - EXAM 2 - Liberty University 2024-

2025. Questions and Verified Answers. Graded

A

accounts payable - ANSspontaneous source of funds, grows as business expands, contracts when business declines accounts receivable financing - ANSincludes pledging accounts receivable as collateral for loan advantage of accounts receivable financing - ANSpermits borrowing to be tied directly to level of asset expansion at any point in time aggressive strategy relies heavily on - ANSshort term financing Aging of accounts receivable - ANSanalyzing accounts by the amount of time they have been on the books. an annuity for which the ash flow occurs at the end of the period - ANSordinary annuity an annuity with an infinite life - ANSperpetuity an increase in the interest rate will - ANSdecrease the PV and increase the FV

Annual percentage rate - ANSA measure of the effective rate on a loan. One uses the actuarial method of compound interest when calculating the APR. APR - ANSAnnual Percentage Rate automated clearinghouses (ACHs) - ANSAn ACH transfers information between one financial institution to another and from one account to another via computer tape. Average collection period - ANSAccounts receivable divided by average daily credit sales; calculates how many days it takes to collect the company's accounts receivable. average inventory - ANSEOQ/2 + safety stock Banker's Acceptance - ANSshort-term securities that frequently arise from foreign trade. basis points - ANSOne basis point equals 1/100 of 1 percent. carrying costs - ANSaverage inventory in units x carrying cost per unit cash conversion cycle - ANStime between when a firm pays its suppliers (payables) for inventory and collecting cash conversion cycle formula - ANSaverage age inventory + average collection period - average pay period

Cost-benefit analysis - ANSa study of the incremental costs and benefits that can be derived from a given course of action. Costs of Ordering - ANSThe cost component in the inventory decision model that represents the expenditure for acquiring new inventory. current dollar of a future amount - ANSpresent value Data Universal Number System (D-U-N-S) - ANSA system in which a unique nine- digit code is assigned by Dun & Bradstreet to each business in its information base. disadvantage of accounts receivable financing - ANSrelatively expensive way to acquire funds Dun & Bradstreet Information Services (DBIS) - ANSA division of Dun & Bradstreet. DBIS is an information company that publishes many different reports that help businesses make credit decisions. Economic Order Quantity (EOQ) - ANSthe most efficient ordering quantity for the firm. The EOQ will allow the firm to minimize the total ordering ad carrying costs associated with inventory. economic order quantity formula - ANSsquare root of (2 x sales in units x order cost)/(carrying cost) effective interest rate - ANSinterest % x loan amount = interest

then interest/principal = effective interest rate effective rate - ANS(interest / principal) x (360/days outstanding) effective rate formula - ANS(interest/principal) x (360/days loan outstanding) effective rate must always - ANSbe greater than stated rate effective rate on discounted loan - ANS(interest/principal - interest) x (360/days outstanding) effective rate on installment loan - ANS(2 x annual no. payments x interest) x(total number of payments + 1) x principal effective rate with compensating balances - ANS(interest/principle-compensating balance in dollars)*(Days in the year (360)/days loan is outstanding) electronic funds transfer - ANSfunds moved between computer terminals ERP - ANSenterprise resource planning - SAP Eurodollar certificate of deposit - ANSA certificate of deposit based on U.S. dollars held on deposit by foreign banks

Hedging - ANSengaging in a transaction that partially reduces a prior risk exposure. Investors hedge themselves by diversifying. how much short term financing is in form of accounts payable or trade credit - ANS40% if interest is compounded semi annually what do we do - ANS- multiply n by 2

• divide interest rate by 2 if percent of not taking cash discount is smaller than percent to takes cash discount you should - ANSgive up discount and not take it International electronic funds transfer - ANSThe movement of funds across international boundaries. It is mainly carried out through SWIFT (Society for Worldwide Interbank Financial Telecommunications). international money management - ANSmultinational corporations can shift funds from country to country from regional banks to lead banks inventory financing - ANSmarketability of pledged goods inverted yield curve - ANSaccurate predictor of recession within a year -short term rates are higher than long term rates is the effective rate or the nominal rate higher whenever compounding occurs more that once a year - ANSthe effective rate is higher

JIT management - ANSjust in time management - quality production that continually satisfies customer requirements, minimizes inventory - on average JIT reduces inventory to sales ratio by 10% just-in-time inventory management (JIT) - ANSA system of inventory management hat stresses taking possession of inventory just before the time it is needed for production or sale larger rates for - ANSlong term financing Level production - ANSEqual monthly production used to smooth out production schedules and employ manpower and equipment more efficiently and at a lower cost. Liquidity premium theory - ANSThis theory indicates that long-term rates should be higher than short-term rates. lock box system - ANSA procedure used to expedite cash inflows to a business. lower rates for - ANSshort term finanacning mail float - ANSoccurs because of time mail takes to be delivered market segmentation theory - ANSA theory that Treasury securities are divided into market segments by various financial institutions investing in the market. The

permanent current assets - ANScurrent assets that will not be reduced or converted to cash within the normal operating cycle of the firm permanent funding - ANSif a firm's sales are constant then its investments in operating assets (long term financing) Point-of-sales terminals - ANSComputer terminals in retail stores that either allow digital input or use optical scanners. The terminals may be used for inventory control or other purposes. safety stock of inventory - ANSinventory that a company holds to protect against being out of an item. seasonal funding - ANShow much extra cash we will need (short term financing ) Self-liquidating assets - ANSAssets that are converted to cash within the normal operating cycle of the firm. An example is the purchase and sale of seasonal inventory. stream of equal periodic cash flows - ANSannuity Sweep account - ANSAn account that allows companies to maintain zero balances with all excess cash swept into an interest-earning account. temporary current assets - ANSCurrent assets that will be reduced or converted to cash within the normal operating cycle of the firm.

Term structure of interest rates (yield curve) - ANSThe term structure shows the relative level of short-term and long-term interest rates at a point in time. the higher the discount, - ANSthe lower the present value the present value of an annuity due is - ANSgreater than the present value of an ordinary annuity three basic categories of inventory - ANSraw materials, WIP, finished goods tight money - ANSA term to indicate time periods in which financing may be difficult to find and interest rates may be quite high by normal standards. trade credit - ANSwhen a business (like a wholesaler) sells to another business on credit Treasury Bills - ANSshort-term obligations of the federal government two types of float - ANSmail and clearing value given at a future date on a payment today - ANSfuture value what do you normally expect to see on the yield curve - ANSand upward sloping curve

which rates will always be greater than or equal to the stated rate? - ANSthe true and effective rates Working capital management - ANSfinancing and managing the current assets of a firm yield curve - ANStells the stated rate of government bonds - shows differences in maturities