PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Question
Chapter 23, Problem 13PS
Summary Introduction
To determine: The common problems for a credit scoring system.
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Students have asked these similar questions
Which one of the following best defines the term credit scoring?
A.
Categorizing customers into groups depending on the length of time it takes each customer to pay for purchases
B.
Compiling a list of accounts receivable segregated by the length of time each receivable has been outstanding
C.
Evaluating the opportunity costs of a credit policy
D.
Process of quantifying the probability of default when granting credit to customers
E.
Tracking of both the number and the size of customer orders over a period of time
Which of the following is TRUE about Credit Score / FICO Score:
Group of answer choices
the lower the number, the better chances to obtain credit at a very low cost
randomly assigned number; Experian, Equifax, and TransUnion use to monitor Covid-19 tracing
typically between 1 and 10; calculated from the highest value assigned by the government
typically between 300 and 850; calculated from your credit report to gauge your reliability as a borrower
Consumers should comparison shop for credit just as they would for any other consumer good or service. How might a consumer's stage of the financial life cycle, income, net worth, or credit score affect the availability of loan sources and the associated cost of the loans offered?
Question content area bottom
Part 1
Which of the following statements is correct? (Select best answer below.)
A.
Typically, stages of the financial life cycle, income, and net worth move inversely with credit score, and the cost of the loans tends to be lower in early financial life cycle stages due to a sufficient supply of fund sources.
B.
Typically, stages of the financial life cycle, income, net worth and your credit score move in unison, and the cost of the loans tends to be lower in early financial life cycle stages due to a sufficient supply of fund sources.
C.
Typically, stages of the financial life cycle, income, net worth and your credit score…
Chapter 23 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 23 - Expected yield You own a 5% bond maturing in two...Ch. 23 - Bond ratings In February 2018, Aaa bonds yielded...Ch. 23 - Bond ratings It is 2030 and the yields on...Ch. 23 - Prob. 4PSCh. 23 - Default option Other things equal, would you...Ch. 23 - Prob. 6PSCh. 23 - Prob. 7PSCh. 23 - Default option Digital Organics has 10 million...Ch. 23 - Prob. 9PSCh. 23 - Prob. 10PS
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Similar questions
- In the credit market model with asymmetric information, determine how a consumer will respond to an increase in the fraction of bad borrowers in the population. And discuss how the credit market model with asymmetric information shows how a financial crisis can reduce consumption.arrow_forwardYour company provides credit to customers. Someof these customers default on their loans, with verynegative implications for you. Describe how you coulduse discriminant analysis to learn what distinguishesthe customers who default on their loans from thosewho pay back their loans. How might you use such amodel?arrow_forwardIf a consumer with a relatively low credit score applied for a loan from your bank, what other criteria might you consider before deciding to grant a loan?arrow_forward
- What are the advantages and disadvantages of using credit scoring to evaluate a loan application?arrow_forwardWhy do we need to check the credit worthiness of credit customers before granting their credit application?arrow_forwardDetermine the decision nature of each of the following issues: Will we purchase on credit or will we borrow in the short term and pay cash?arrow_forward
- Please help with the below minicase. Directions: The best way to do this case is to use relevant credit information and calculate some financial ratios: ROA, debt ratio, liquidity ratios, ROE, profit margin, Inventory and Asset turnover. Then look at breakeven point probability, and finally the possibility of a repeat order. What can you say about Miami Spice’s creditworthiness? What is the break-even probability of default? How is it affected by the delay before MS pays its bills? How should George Stamper’s decision be affected by the possibility of repeat orders? MiniCase: George Stamper a credit analyst with Micro-Encapsulators Corp. (MEC) needs to respond to an urgent email request from the southeast sales office. The local sales manager reported that she had an opportunity to clinch an order from Miami Spice (MS) for 50 encapulators at $10,000 each She added that she was particularly keen to secure this order since MS was likely to have a continuing need for 50 encapulators a…arrow_forwardPlease help with the below minicase. Directions: The best way to do this case is to use relevant credit information and calculate some financial ratios: ROA, debt ratio, liquidity ratios, ROE, profit margin, Inventory and Asset turnover. Then look at breakeven point probability, and finally the possibility of a repeat order. What can you say about Miami Spice’s creditworthiness? What is the break-even probability of default? How is it affected by the delay before MS pays its bills? How should George Stamper’s decision be affected by the possibility of repeat orders? MiniCase: George Stamper a credit analyst with Micro-Encapsulators Corp. (MEC) needs to respond to an urgent email request from the southeast sales office. The local sales manager reported that she had an opportunity to clinch an order from Miami Spice (MS) for 50 encapulators at $10,000 each She added that she was particularly keen to secure this order since MS was likely to have a continuing need for 50 encapulators a…arrow_forwardBank can be a source of short-term funding in terms of credit card applications. These fundings on credit cards make sure that regular payments should be made. Group of answer choices True Falsearrow_forward
- Explain whati mportant information we can get from each sources of credit information to be able to make a decision whether or not we can extend credit to the loan applicant.arrow_forwardWhat is credit risk? Discuss the more qualitative factors that creditors also consider in conjunction with quantitative ratio analysis when analyzing credit risk. PLEASE DON'T COPY AND PASTE, USE YOUR WORDS.arrow_forwardWhat is the difference between a credit score(FICO) and a credit report. How/where can you check your report? How/where can you check your score?arrow_forward
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