Which of the following statements is correct?
A) If a firm has a very high fixed asset turnover, it means that the firm may be nearing its maximum production capacity.
B) An extremely low average collection period will maximize net income.
C) In general, a firm should strive for a high average payment period because it wants to pay for its purchases as quickly as possible.
D) All of these choices are correct.

Question

Quizplus · Accepted Answer

A high fixed asset turnover indicates efficient use of assets in generating sales, which could mean the firm is operating near its capacity. Choices B and C are incorrect because an extremely low average collection period does not necessarily maximize net income due to potential lost sales from strict credit policies, and firms generally benefit from a longer, not shorter, average payment period to improve cash flow.

Which of the Following Statements Is Correct