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List and define the four credit policy variables

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Reference no: EM133176717

Questions -

Q1. List and define the four credit policy variables.

Q2. Does its management typically have complete control over a firm's credit policy? Explain.

Q3. How does credit policy affect the CCC?

Q4. How does collection policy influence sales, the collection period and the bad-debt loss percentage?

Q5. How can cash discounts be used to influence sales volume and the DSO?

Q6. What is season dating?

Q7. How do profit potential and legal considerations affect a firm's credit policy?

Q8. Is it true that, if a firm calculates its DSO, it has no need for an aging schedule? Explain.

Q9. What types of deficiencies exist when using DSO and an aging schedule to monitor collections over time?

Q10. What is the uncollected balances schedule?

Q11. Discuss the advantages of using the uncollected balance schedule instead of DSO or an aging schedule for monitoring receivables?

Q12. Describe the procedure for evaluating a change in credit policy using the income statement approach.

Q13. Do you think that credit policy decisions are made more on the basis of numerical analyses or on subjective judgment? Support your response.

Q14. Describe the incremental analysis approach for evaluating a proposed credit policy change. How can risk be incorporated into the analysis?

Q15. As a general rule, is it more likely that a company would increase its profitability if it tightened or loosened its credit policy? Explain.

Q16. Discuss the following ways that banks can calculate interest on loans:

Simple interest -

Discount interest -

Add-on interest -

Q17. What is a compensating balance?

Q18. What effect does a compensating balance requirement have on the effective interest rate on a loan?

Q19. List and discuss some factors to consider when choosing a bank?

Reference no: EM133176717

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