Financial Managers Should Always Use the Free Component of the Trade

question 100

Multiple Choice

Financial managers should always use the free component of the trade credit, but they should use the costly component only after analyzing this source of financing to make sure

• A)that it is greater than the cost of funds for the firm.
• B)that it has a maturity less than the average collection period.
• C)that it is less than the cost of funds for the firm.
• D)that the default risk inherent in accepting this trade credit is low.
• E)that firms offering the trade credit does not issue commercial paper.

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Definitions:

Zinc

A metallic element used primarily for galvanizing iron and steel to prevent rust and in alloys such as brass, along with various other applications.

Factor Prices

Prices paid for the use of factors of production such as labor, capital, and land.

Production Function

An equation that describes the maximum amount of output that can be produced from a given set of inputs.

Short-Run Total Cost

The total of all costs incurred in the production process when some factors of production are fixed.