alleryStart learning →A company with a liberal credit policy requires working capital in what amount?
AA shorter amount
BA steadier amount
CA greater amount
DA smaller amount
Answer & Solution
Correct answer: C. A greater amount
1. A liberal credit policy lets customers take longer to pay.
2. Longer collection periods leave more money sitting in receivables.
3. That ties up more dollars and requires a greater amount of working capital.
4. So a generous policy is not free.
_Source: OpenStax Principles of Finance (CC BY 4.0), Ch 19 'The Importance of Trade Credit and Working Capital in Planning', sections 19.1-19.5_
Keep practising Working Capital Management
Browse all Working Capital Management questions for US CMA Part 2, or explore more Finance topics.
Related questions
Working capital bingoFlip and match the termsPick it fastLiquid or notBuild the net working capitalWhich production technique is named as affecting the inventory conversion cycle?Supplies and prepaid expenses are described as never becoming which of these?Why can an excessively high net working capital be a problem?