Question 6 A firm\'s collection policy, i.e., the procedures it follows to colle
ID: 2665915 • Letter: Q
Question
Question 6
A firm's collection policy, i.e., the procedures it follows to collect accounts receivable, plays an important role in keeping its average collection period short, although too strict a collection policy can reduce profits due to lost sales.
Answer
True
False
Question 7
If one of your firm's customers is "stretching" its accounts payable, this may be a nuisance but it does not represent a real financial cost to your firm as long as the customer periodically pays off its entire balance.
Answer
True
False
Question 8
Other things held constant, which of the following will cause an increase in net working capital?
Answer
Cash is used to buy marketable securities.
A cash dividend is declared and paid.
Merchandise is sold at a profit, but the sale is on credit.
Long-term bonds are retired with the proceeds of a preferred stock issue.
Missing inventory is written off against retained earnings.
Question 9
Firms generally choose to finance temporary current operating assets with short-term debt because
Answer
matching the maturities of assets and liabilities reduces risk under some circumstances, and also because short-term debt is often less expensive than long-term capital.
short-term interest rates have traditionally been more stable than long-term interest rates.
a firm that borrows heavily on a long-term basis is more apt to be unable to repay the debt than a firm that borrows short term.
the yield curve is normally downward sloping.
short-term debt has a higher cost than equity capital.
A firm's collection policy, i.e., the procedures it follows to collect accounts receivable, plays an important role in keeping its average collection period short, although too strict a collection policy can reduce profits due to lost sales.
Answer
True
False
Explanation / Answer
6. True
7. False
8.
Merchandise is sold at a profit, but the sale is on credit.
9. matching the maturities of assets and liabilities reduces risk under some circumstances, and also because short-term debt is often less expensive than long-term capital.
8.
Merchandise is sold at a profit, but the sale is on credit.
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