A Firm Is Considering Changing Their Credit Terms

question 66

Multiple Choice

A firm is considering changing their credit terms. It is estimated that this change would result in sales increasing by $1,000,000. This in turn would cause inventory to increase by $150,000, accounts receivable to increase by $100,000, and accounts payable to increase by $75,000. What is the firm's expected change in net working capital?

• A) $325,000
• B) $250,000
• C) $175,000
• D) $1,175,000

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Definitions:

Productivity

The measure of the efficiency of a person, machine, factory, system, etc., in converting inputs into useful outputs.

Efficiency

The ratio of useful output to total input, referring to the effective use of resources without waste.

Skill-Based Pay

A compensation system that establishes pay levels based on the skills or qualifications an employee possesses, rather than the job position alone.

Quality Circle

A voluntary group of workers who perform the same or similar work, who meet regularly to identify, analyze, and solve work-related problems, aiming to improve the performance of their area and to enhance their own working lives.