A firm currently has a cash only credit policy. The firm is considering adopting a credit policy which will extend credit to customers for 45 days and grant the credit customers who pay in 15 days or less a discount.
The default rate and increase in sales are variables used in the analysis of this proposal that are outside of the control of the firm.

Question

Quizplus · Accepted Answer

The default rate and increase in sales are indeed variables outside of the firm's control when analyzing the proposal to extend credit terms. The default rate depends on the customers' ability and willingness to pay, while the increase in sales depends on customer response to the new credit terms, both of which cannot be directly controlled by the firm.

A Firm Currently Has a Cash Only Credit Policy