The Principal Reason for Converting a Customer's Account Receivable to a Note

question 23

Multiple Choice

The principal reason for converting a customer's account receivable to a note receivable is:

• A)the note receivable earns interest and the account receivable does not.
• B)the receivable is less likely to have to be written off as uncollectible.
• C)working capital is immediately increased.
• D)the customer is more likely to continue purchasing the company's products.

Calculate the present and future values of single payments and annuities using different interest rates and time periods.

Analyze the benefits of different payment options to make informed financial decisions.

Compute the rate of return required for an investor to be indifferent between different financial options.

Evaluate the economic value of delayed or advanced payments considering the cost of capital.

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Definitions:

Diminishing Marginal Returns

A principle stating that if one factor of production is increased while others are kept constant, the resulting increase in output will eventually decline.

Short-Run Average Total Cost (ATC)

The total cost per unit of output in the short run, where some factors of production are fixed.

Profit-Maximizing Level

The output level at which a firm achieves the highest profit, where marginal revenue equals marginal cost.

Average Total Costs (ATC)

A rephrasing of Average Total Cost, it calculates the per-unit production cost by dividing the total cost by the total quantity of goods produced.