19.2

a. An increase in the interest rate will increase the cost of carrying current assets. The effect is to reduce the optimal level of such assets.

b. The just-in-time system lowers the expected level of shortage costs and reduces the amount of goods the firm ought to be willing to keep in inventory.

c. If the firm decides that more lenient credit terms are necessary to avoid lost salles, it must then expect customers to pay their bills more slowly. Accounts receivable will increase.