Risk should be incorporated into the decision to grant credit by:

Question

Quizplus · Accepted Answer

Incorporating risk into the decision to grant credit involves decreasing the expected cash inflows or increasing the expected cash outflows to reflect the possibility of non-payment or default by customers. This can be achieved by decreasing the numerator of the NPV formula, which represents the expected cash inflows, or by increasing the denominator, which represents the expected cash outflows. Option C suggests decreasing the numerator, which is the appropriate strategy to incorporate risk into the decision to grant credit. Options A, B, D, and E do not address the issue of risk in credit decision-making.

Risk Should Be Incorporated into the Decision to Grant Credit