Risk Should Be Incorporated into the Decision to Grant Credit

question 95

Multiple Choice

Risk should be incorporated into the decision to grant credit by:

• A)decreasing the discount rate.
• B)increasing the credit period to allow for customers in financial distress to reorganize.
• C)decreasing the cash inflows, or the numerator of the NPV formula.
• D)increasing the cash inflows, or the numerator of the NPV formula.
• E)increasing costs per unit.

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Definitions:

December 31

December 31 is traditionally the final day of the Gregorian calendar year, and it is often the fiscal year-end for organizations operating on a calendar year basis.

Straight-Line Depreciation

A method of allocating the cost of a tangible asset over its useful life in an equal and consistent manner.

Book Value

The net value of a company's assets found on the balance sheet, calculated as total assets minus intangible assets (patents, copyrights) and liabilities.

Residual Value

The estimated amount that an asset is worth at the end of its useful life.