IIA-CIA-Part3 Exam QuestionsBrowse all questions from this exam

IIA-CIA-Part3 Exam - Question 10


In an analysis of alternative credit-management policies, which of the following components will cause the net present value of receivables on credit sales to increase, if everything else remains constant?

Show Answer
Correct Answer: AC

A longer average collection period means that customers are taking more time to pay their invoices. If customers take longer to pay, the receivables will remain on the company's books for a longer period of time, increasing the net present value of those receivables, assuming everything else remains constant.

Discussion

1 comment
Sign in to comment
chung002
Nov 26, 2020

i dont quite understand this question and answer. Can anyone help me on this.

koziolmutant
Dec 16, 2020

it is only my educational guess, but the question is about an element of the credit policy, so only one answer fits in that.

Knot_Theory
Mar 19, 2021

I got confused because I didn't read carefully, at first I Thought it was C because I thought it said a longer collection period, but then I realized it said a longer AVERAGE collection period. After I realized my mistake it was obvious.

John1237
Sep 2, 2022

When there is a loss, the receivables decrease, as well as their present value (for the same portfolio of receivables).