The optimal amount of credit equates the incremental costs of carrying the increase in accounts receivable to the incremental:
A) decrease in the cash cycle.
B) benefit from decreasing the inventory level.
C) cash flows from increased sales.
D) increase in bad debts.
E) gain in net profits.

Question

Quizplus · Accepted Answer

The optimal amount of credit should be set at the point where the incremental benefits from increased sales due to expanded credit is equal to the incremental costs of carrying the increase in accounts receivable. Therefore, the correct choice is C - cash flows from increased sales.

The Optimal Amount of Credit Equates the Incremental Costs of Carrying