Financial Managers Should Always Use the Free Component of the Trade

question 100

Multiple Choice

Financial managers should always use the free component of the trade credit, but they should use the costly component only after analyzing this source of financing to make sure

• A)that it is greater than the cost of funds for the firm.
• B)that it has a maturity less than the average collection period.
• C)that it is less than the cost of funds for the firm.
• D)that the default risk inherent in accepting this trade credit is low.
• E)that firms offering the trade credit does not issue commercial paper.

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Definitions:

Error Management Theory

A theory suggesting that humans are evolved to favor strategies that minimize the more costly type of errors in the dual nature of decision-making errors: false positives and false negatives.

Self-determination Theory

A psychological theory focused on motivation, particularly intrinsic forms of motivation, and the role of autonomy, competence, and relatedness in fostering well-being.

Reactance Theory

A psychological theory suggesting that people act to preserve their freedoms when they feel they are being threatened or eliminated.

Action Identification Theory

A psychological theory that examines how individuals understand and conceptualize their actions, ranging from low-level details to high-level purposes.