All Else Equal,firms with (1)excess Capacity,(2)low Variable Costs,and (3)repeat Customers

question 25

Essay

All else equal,firms with (1)excess capacity,(2)low variable costs,and (3)repeat customers are more apt to offer liberal credit terms to their customers than are other firms.Explain why this tendency exists.

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Definitions:

Risk-adjusted Discount Rates

Discount rates that are adjusted to reflect the risk of an investment, used in calculating the present value of expected future cash flows.

Unsystematic Risk

The risk associated with a specific company or industry, which can be reduced through diversification.

Diversifiable Risk

A type of investment risk that can be reduced or eliminated through the use of diversification strategies across different assets or asset classes.

Beta

A measure of a stock's volatility in relation to the overall market, indicating its riskiness compared to the market average.