A growing firm that delays payments at the end of each period reports larger cash flow from operations each period than if it had not delayed making the cash payments at the end of each period.Which of the following is true?
A)The firm is, in effect, obtaining short-term financing from its suppliers.
B)Absent contracts or other agreements that preclude delayed payments, this business practice is legal.
C)Sufficiently delayed payments might harm a firm's reputation.
D)Sufficiently delayed payments might harm a firm's credit rating.
E)All of the above are true.

Question

Quizplus · Accepted Answer

A) This is true because the firm is effectively using its suppliers as a source of short-term financing by delaying payments.

B) This is also true because delayed payments are not necessarily illegal, unless there are contracts or agreements that explicitly require payments to be made on a certain timeline.

C) Delayed payments could harm a firm's reputation if suppliers become dissatisfied with the practice and decide to stop doing business with the firm.

D) Similarly, delayed payments could harm a firm's credit rating if suppliers report the late payments to credit agencies or if the firm's inability to pay on time becomes a pattern.

Therefore, all of the above options are true.

A Growing Firm That Delays Payments at the End of Each