The Effect of a Change in a Firm's Credit Terms

question 73

Multiple Choice

The effect of a change in a firm's credit terms from "net 30" to "2/10, net 30" on its own balance sheet is likely to be ____.

• A) decreased accounts receivable
• B) increased accounts receivable
• C) decreased accounts payable
• D) increased accounts payable

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Definitions:

Modigliani-Miller Model

A theory on capital structure that suggests that under certain market conditions (no taxes, no transaction costs), the value of a firm is unaffected by how it is financed.

Restructuring

Restructuring involves modifying the structure or operations of a company, often including changes in financial policies, organizational setup, or business strategy, aimed at increasing profitability or addressing financial challenges.

Market Value

The estimated amount for which an asset or liability should exchange on the date of valuation between a willing buyer and a willing seller in an arm's length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently, and without compulsion.

Required Rates Of Return

Required rates of return are the minimum returns investors expect to receive from an investment to compensate for its perceived risk.