A Firm in a Competitive Industry Institutes a Change in Credit

question 203

Multiple Choice

A firm in a competitive industry institutes a change in credit policy that allows buyers more advantageous terms. The firm also drops its prices by 5%. Unless ____________, the change will almost certainly be a negative NPV investment.

• A) Total costs fall.
• B) Most of the seller's costs are variable costs.
• C) The seller is planning to offer a cash discount.
• D) Sales increase.
• E) Customers actually take advantage of the new terms.

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Definitions:

Conscience

An inner feeling or voice viewed as acting as a guide to the rightness or wrongness of one's behavior.

Rational Decisions

Choices made based on logical reasoning, where all alternatives are considered and the most optimal outcome is selected.

Defense Mechanism

Psychological strategies unconsciously used to protect oneself from anxiety arising from unacceptable thoughts or feelings.

Repression

A defense mechanism where distressing memories, thoughts, or impulses are excluded from conscious awareness.