Question

Which of the following statements is FALSE? Select one: a. If the accounts payable outstanding is 40 days and the terms are 2/10 net 30, the firm can conclude that it generally pays late and may be risking supplier difficulties. b. Suppliers may react to a firm whose payments are always late by imposing terms of cash on delivery (COD) or cash before delivery (CBD). c. Some firms ignore the payment due period and pay later, in a practice referred to as pushing the accounts payable. d. Similar to the situation with its accounts receivable, a firm should monitor its accounts payable to ensure that it is making its payments at an optimal time.

Which of the following statements is FALSE?

Select one:

a. Unlike trade credit, inventory represents one of the required factors of production.

b. Under the Modigliani-Miller assumptions of perfect capital markets, the amount of inventory is irrelevant.

c. Inventory management receives extensive coverage in courses on operations management.

d. It is the firm's financial manager who must arrange for the financing necessary to support the firm's inventory policy and who is responsible for ensuring the firm's overall profitability.

Answer 1

Answer 1: The statement that "Some firms ignore the payment due period and pay later, in a practice referred to as pushing the accounts payable" is false as the practice referred to as pushing the account payables actually intends for making the payments in a timely manner, so that working capital cycle is appropriately maintained

therefore (c) option is false

Further, a)  If the accounts payable outstanding is 40 days and the terms are 2/10 net 30, the firm can conclude that it generally pays late and may be risking supplier difficulties is true as in the ideal situation payment should have been done within 30 days and therefore a delay beyond 30 days can be concluded as risking supplier difficulties

b) Suppliers may react to a firm whose payments are always late by imposing terms of cash on delivery (COD) or cash before delivery (CBD) is true as imposition of COD or CBD will result in on time payments for the supplies

d) Similar to the situation with its accounts receivable, a firm should monitor its accounts payable to ensure that it is making its payments at an optimal time is true as the same will ensure that working capital cycle is maintained and also the credit credibility for accounts payable of a firm will be maintained

Answer 2

In a perfect markets setting in which the Modigliani-Miller assumptions holds, the firm still needs inventory and therefore the

(b)  Under the Modigliani-Miller assumptions of perfect capital markets, the amount of inventory is irrelevant is false.

Further, the other statements

a) Unlike trade credit, inventory represents one of the required factors of production.

c) Inventory management receives extensive coverage in courses on operations management.

d) It is the firm's financial manager who must arrange for the financing necessary to support the firm's inventory policy and who is responsible for ensuring the firm's overall profitability.

are true in relation to the optimal inventory management