1. How should your willingness to grant credit be affected by differences in ( a ) the profit margin, ( b ) the interest rate, ( c ) the probability of repeat orders? In each case illustrate your answer with a simple example.
2. How would you expect a firm’s cash balance to respond to the following changes?
a. Interest rates increase.
b. The volatility of daily cash flow decreases.
c. The transaction cost of buying or selling marketable securities goes up.
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