A Company Extends Credit to Customers Because It Expects The

question 87

Multiple Choice

A company extends credit to customers because it expects the:

• A) rise in sales revenue to be greater than the rise in cost of extending credit.
• B) delay in receiving cash to cost more than the increase in wage costs.
• C) tax savings from a lower net income to be greater than the cost of extending credit.
• D) bad debts expense to be less than the additional wage costs.

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Definitions:

Dividend Yield

A financial measurement that illustrates the annual amount a company dispenses in dividends compared to its current stock price.

P/E Ratio

The ratio of a company's share price to its earnings per share, indicating the value the market places on its earnings.

Earnings Retention Ratio

The proportion of net earnings not paid out as dividends but retained by the company to be reinvested in its core business, or to pay debt.

Dividend Payout Ratio

The percentage of net income a firm pays to its shareholders as dividends.