C+ Notes' Business Is Booming, and It Needs to Raise

question 33

Multiple Choice

C+ Notes' business is booming, and it needs to raise more capital. The company purchases supplies from a single supplier on terms of 1/10, net 20 days, and it currently takes the discount. One way of getting the needed funds would be to forgo the discount, and C+'s owner believes she could delay payment to 40 days without adverse effects. What is the effective annual rate of stretching the accounts payable?

• A) 10.00%
• B) 11.11%
• C) 11.75%
• D) 12.29%
• E) 13.01%

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Definitions:

Efficient Market

A market in which profit opportunities are eliminated almost instantaneously.

Production Inefficiencies

Occur when goods and services are not produced in the least costly way, often due to waste or misallocation of resources.

Production Possibility Frontier

A curve depicting all maximum output possibilities for two goods, given a set of inputs, highlighting the trade-offs in production choices.

Fully Employed

A situation in which all available labor resources are being used in the most economically efficient way.