Which of the Following Statements Regarding the Tradeoffs of Extending

question 144

Multiple Choice

Which of the following statements regarding the tradeoffs of extending credit is not true?

• A)Extending credit to at least some customers is necessary in a competitive market to avoid losing sales to competitors.
• B)Even if a company were to collect in full from customers,there would be a cost of extending credit to customers.
• C)Even though additional costs are incurred if credit is extended,a company expects that the additional revenue will be more than sufficient to offset the additional costs.
• D)Even if there are no bad debts from credit sales,the delayed receipt of cash will always increase additional costs beyond the increased revenue from the credit sales.

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Definitions:

Tax Rate

The part of an individual's or corporation's earnings that is subject to taxation.

Debt-Equity Ratio

The ratio indicating a corporation's reliance on debt financing, found by dividing its total debts by the equity held by its shareholders.

After-Tax Cost of Debt

The net cost of debt after accounting for the effects of taxes, reflecting the actual cost to a company.

Cost of Equity

The theoretical compensation paid by a company to its equity investors, or shareholders, for the risk involved in investing their capital.