A firm's credit selection procedures must be established on a sound economic basis that considers the costs of investigating the creditworthiness of a customer and the expected size of its credit purchases.

Question

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A firm's credit selection procedures should indeed be based on an economic analysis that takes into account the costs associated with researching a customer's creditworthiness and the anticipated value of its credit transactions. This will allow the firm to make informed decisions about whether or not to extend credit to a particular customer, and under what terms and conditions.

A Firm's Credit Selection Procedures Must Be Established on a Sound