Which of the Following Statements Is Correct

question 79

Multiple Choice

Which of the following statements is correct?

• A)If credit sales as a percentage of a firm's total sales increases, and the volume of credit sales also increases, then the firm's accounts receivable will automatically increase.
• B)It is possible for a firm to overstate profits by offering very lenient credit terms that encourage additional sales to financially weak firms. A major disadvantage of such a policy is that it is likely to increase uncollectible accounts.
• C)Firms use seasonal dating primarily to decrease their DSO.
• D)Seasonal dating with terms 2/15, net 30 days, with April 1 dating, means that if the original sale took place on February 1, the customer can take the discount up until March 15, but must pay the net invoice amount by April 1.

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Definitions:

Break-Even Time

The period it takes for a business or project to recover its costs, reaching a financial break-even point.

Payback Period

The payback period is the time it takes for an investment to generate cash flows sufficient to recover its initial cost.

Net Present Value

A calculation that compares the present value of cash inflows to the present value of cash outflows over a period of time, used to assess the profitability of an investment.

Payback Period Method

A simple calculation that divides the initial investment by the annual cash inflows to determine how long it will take to recoup the initial investment.