Question

A restrictive short-term financial policy, as compared to a more flexible policy, tends to increase A. the probability that a firm will face a cash-out situation. B. the sales of a firm due to the firm's credit availability and terms. C. sales due the large amount of inventory on hand. D. accounts receivable. E. the ability of a firm to charge premium prices.

Answer 1

Answer:

A. the probability that a firm will face a cash-out situation

Explanation:

First, it is important to understand that the characteristic of a restrictive short-term financial policy is that it does not allow firms to keep a high level of assets that are easily converted to cash i.e. current assets. These assets include accounts receivable and cash among others.

As such the probability that the firm will face a cash out situation (due to the insufficiency of liquid assets) is high.

Looking at the other options, any option that does affect the short term assets or liquidity of the firm will be false. As such sales will not be affected, account receivable will not increase