Which of the Following Statements Is CORRECT

question 18

Multiple Choice

Which of the following statements is CORRECT?

• A) A firm that makes 90% of its sales on credit and 10% for cash is growing at a constant rate of 10% annually.Such a firm will be able to keep its accounts receivable at the current level,since the 10% cash sales can be used to finance the 10% growth rate.
• B) In managing a firm's accounts receivable,it is possible to increase credit sales per day yet still keep accounts receivable fairly steady,provided the firm can shorten the length of its collection period (its DSO)sufficiently.
• C) Because of the costs of granting credit,it is not possible for credit sales to be more profitable than cash sales.
• D) Since receivables and payables both result from sales transactions,a firm with a high receivables-to-sales ratio must also have a high payables-to-sales ratio.
• E) Other things held constant,if a firm can shorten its DSO,this will lead to a higher current ratio.

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Definitions:

Capital Expenditures

Funds used by a company to acquire or upgrade physical assets such as property, industrial buildings or equipment.

Cash Dividends

Payments made by a corporation to its shareholder members as a distribution of profits.

Operating Expenses

Costs associated with a company's day-to-day operational activities, excluding direct labor, direct materials, and direct expenses.

Prepaid Expenses

Payments made in advance for goods or services to be received in the future.