Which of the following statements is CORRECT?
A) Accruals are an expensive but commonly used way to finance working capital.
B) A conservative financing policy is one where the firm finances part of its fixed assets with short-term capital and all of its net working capital with short-term funds.
C) If a company receives trade credit under terms of 2/10,net 30,this implies that the company has 10 days of free trade credit.
D) One cannot tell if a firm has a conservative,aggressive,or moderate current asset financing policy without an examination of its cash budget.
E) If a firm has a relatively aggressive current asset financing policy vis-à-vis other firms in its industry,then its current ratio will probably be relatively high.

Question

Quizplus · Accepted Answer

The statement in option C is correct. The terms "2/10, net 30" mean that the buyer can receive a 2% discount on the purchase price if they pay within 10 days, otherwise, the full amount is due in 30 days. It does not imply that the company has 10 days of free trade credit. The other options are incorrect. Accruals are not a form of financing, but rather a method of accounting for expenses and revenues. A conservative financing policy is one where a firm finances part of its fixed assets with long-term capital and its net working capital with short-term funds. A cash budget may give an indication of a firm's current asset financing policy, but it is not the only factor. A firm with an aggressive current asset financing policy may have a lower current ratio because it is using more short-term financing.

Which of the Following Statements Is CORRECT