18. Which of the following statements is TRUE?

a. Suppose a firm changes its credit terms from net 30 days (no discounts) to 3/10, net 40, and this change leads to a 5% increase in total sales. We can be virtually certain that the firms accounts receivable balance will also increase.

b. If a firm offers lenient credit terms to financially weak customers, this might enable it to report high sales and profits. However, some customers might not pay their bills, end up as bad debts, and thus cause the firm to report lower profits in subsequent periods.

c. A firm with excess capacity and relatively low variable costs would be inclined to restrict the credit terms it offers to customers.

d. A revolving credit agreement is a particular type of line of credit that firms with surplus cash use in order to obtain a higher rate of return on their cash balances.

19. A firm has decided to borrow $500,000 on a 10% add-on basis, payable in 6 end-of-month installments. What would the nominal annual rate on the loan be?

a. 12.7%

b. 14.1%

c. 16.9%

d. 18.3%

20. Which Statement is correct?

a. If a firm factors their accounts receivable with recourse, then they are still liable if their customer doesnt pay

b. If a firm has a Floating Lien, then they are prohibited from selling their inventory

c. If a firm pledges their Accounts Receivables, then they must remove the accounts from their Balance Sheet

d. A Trust Receipt is used for loans in which there is no collateral