A fiRm in a Competitive Industry Institutes a Change in Credit

question 111

Multiple Choice

A firm in a competitive industry institutes a change in credit policy that allows buyers more advantageous terms. The firm also drops its prices by 5%. Unless ____________, the change will
Almost certainly be a negative NPV investment.

• A) Total costs fall.
• B) Most of the seller's costs are variable costs.
• C) The seller is planning to offer a cash discount.
• D) Sales increase.
• E) Customers actually take advantage of the new terms.

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Definitions:

Causation

The demonstration of a cause-and-effect relationship, particularly in legal contexts to prove fault or liability.

Tort

An act of wrongdoing that results in damage or injury to a plaintiff, thus creating a legal responsibility for the individual responsible for committing the act.

Court

A judicial institution with the authority to hear and resolve disputes, apply the law, and administer justice.

Contributory Negligence

A legal doctrine where if the plaintiff in a negligence case is found to be partly at fault, they may receive reduced or no damages.