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.

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Stefan Lenzarini · Accepted Answer

Final Answer : D, Explanation :  - The statement in D is false because when credit is extended to a new customer, the amount the seller has at risk is not just the price the customer pays, but also includes the cost of the goods sold to the customer. If the customer fails to pay, the seller loses not only the potential revenue but also the cost associated with the product that was sold on credit.

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