When Analyzing the Decision to Change the Cash Discount Policy

question 66

Multiple Choice

When analyzing the decision to change the cash discount policy, the firm should:

• A)choose the policy with the highest order size.
• B)choose the policy with the lowest variable cost.
• C)choose the policy with the lowest NPV.
• D)choose the policy with the highest NPV.
• E)choose the policy offering the lowest cash discount.

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Definitions:

Inventory Management

The practice of ordering, storing, using, and selling a company's inventory, including the management of raw materials, components, and finished products.

Economic Ordering Quantity

A formula used to determine the optimal order size that minimizes the total cost of inventory management, including holding and ordering costs.

Red-Line

In finance, "red-line" or more commonly "redlining," refers to the unethical practice where banks refuse loans to neighborhoods based on racial or ethnic composition. If this term is meant in another context, it might not be a recognized key term.

DSO

Days Sales Outstanding, a measure of the average number of days it takes a company to collect payment after a sale has been made.