1) If easing a firm's credit policy lengthens the collection period and results in a worsening of the aging schedule, then why do firms take such actions?
a. It normally stimulates sales.
b. To meet competitive pressures.
c. To increase the firm's deferral period for payables.
d. Statements a and b are correct.
e. All of the statements above are correct.
2) Which of the following statements is incorrect?
a. Commercial paper can be issued by virtually any firm so long as it is willing to pay the going interest rate.
b. Accrued liabilities represent a source of "free" financing in the sense that no explicit interest is paid on these funds.
c. A conservative approach to working capital will result in all permanent assets being financed using long-term securities.
d. The risk to the firm of borrowing with short-term credit is usually greater than with long-term debt. Added risk can stem from greater variability of interest costs on short-term debt.
e. Trade credit is often the largest source of short-term credit.
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