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Optimal Credit Policy

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(1) Why do firms find themselves with idle cash? How might companies take advantage of this cash?

(2) In principle, how should we decide the optimal credit policy?

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Solution Summary

150+ words and a graph to illustrate shows how firms find themselves with idle cash and the principle of deciding optimal credit policies.

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(1) Firms may find themselves with idle cash if they set strict rules about the credit history that the party seeking credit should have. Or they may simply find themselves with competitors that lowered their bar to get a better market share. In either case, the ...

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