A change in the credit policy will be beneficial to a firm if it results in an increase in the:

Question

Quizplus · Accepted Answer

A change in the credit policy that results in an increase in net present value will be beneficial to the firm. This could be achieved by decreasing the time it takes for customers to pay their debts (reducing days sales outstanding) or by reducing bad debt losses. By increasing the cash inflows and reducing the cost of bad debt, the net present value of the firm will increase. However, changes that increase fixed or variable costs are not likely to be beneficial to the firm in the long run.

A Change in the Credit Policy Will Be Beneficial to a Firm