Question

Which of the following statements is false?

a. By extending credit, a firm typically increases its cash flow through increased gross profits.
b. A cash discount is typically intended to be an incentive to pay early.
c. All else the same, firms with higher markups will tend to have more flexible
credit terms.
d. Whenever credit is extended to a new customer who would not otherwise pay cash, the amount the seller has at risk is the price the customer pays
e. The carrying costs associated with granting credit will increase as credit policies are relaxed.

Answer 1

Option a. By extending credit, a firm typically increases its cash flow through increased gross profits is the false statement.

Step-by-step explanation:

The false statement among the options is:

a. By extending credit, a firm typically increases its cash flow through increased gross profits.

This statement is false because extending credit does not directly increase a firm's cash flow. While it may lead to increased sales and revenue, the cash flow is only affected when the customers make the payments.

Extending credit creates the potential for increased cash flow, but it does not guarantee it.