Answer (C) is correct . If the cost of borrowing is low, the firm can satisfy its working capital needs otherwise than by encouraging early payment from customers. Also, loosening credit policies tends to increase repeat sales.
Answer (A) is incorrect because If the firm is operating at full capacity, it is selling all it can produce and has no need to loosen its credit policies.
Answer (B) is incorrect because If the firm is operating at full capacity, it is selling all it can produce and has no need to loosen its credit policies.
Answer (D) is incorrect because If the gross margin per unit is low, greater sales will not significantly improve the firm’s profits.
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Which of the above factors would indicate that the company should liberalize its credit policy?