Question

9. Which one of these statements is correct? A) Total revenues generally decrease if both the quantity sold and the price per unit increase when credit is granted. B) A firm's cash cycle generally decreases when it switches from a cash to a credit policy, all else equal. C) A firm may have to increase its long-term borrowing if it decides to grant credit to its customers D) Most customers will forgo the discount and pay at the end of the credit period. E) Only the cost of default should be considered before granting credit. 10. If a company's account payable period is longer than its operating cycle, then which of the following is most likely to be true: A) the company can avoid paying corporate taxes on earnings retained as cash. B) the company's cash cycle is longer than its operating eyele. C) the company's future cash flows will increase at a steady rate. D) the company's cash cycle is negative E) the company pays for its inventory before it receives payments for its sales II. Marketable securities generally have which of the following characteristics? A) Low default risk, low liquidity, low return B) High return, high liquidity, low risk C) High liquidity, low risk, low return D) Long maturity, low risk, high return E) Short maturity, low risk, low liquidity

Answer 1

9. E. Only the cost of default should be considered before granting credit.
The cost of the default has to be considered when a business grants a credit to one of its sellers.

10. D. The company’s cash cycle is negative.
The company’s cash cycle should be within the credit period else it’s going on negatives.

11. A. Low default risk, low liquidity, low return.
These are securities like the assets which are low risk but high liquidity so lesser risk and thus low return.