Asked by
Nestor Gonzalez
on Dec 09, 2024
Verified
A flexible short-term financial policy:
A) Is associated with firms where the carrying costs are considered to be less than the shortage costs.
B) Applies mostly to firms where the shortage costs tend to be less than the carrying costs.
C) Applies only to firms that strictly limit their credit sales.
D) Tends to decrease the amount of current assets held by a firm.
E) Is designed to utilize short-term external financing to fund all of the seasonal increases in current assets.
Shortage Costs
Expenses incurred from not having enough inventory on hand, including lost sales, backorder processing, and dissatisfied customers.
Carrying Costs
Expenses associated with holding or storing inventory, including insurance, storage, depreciation, and opportunity costs.
Seasonal Increases
Periodic rises in business activity or demand that occur at the same time each year due to changes in season.
- Grasp the importance of a flexible short-term financial policy and its implications on a firm's working capital and financial stability.
Verified Answer
HS
Learning Objectives
- Grasp the importance of a flexible short-term financial policy and its implications on a firm's working capital and financial stability.