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:

Common Share

A type of security that represents ownership in a corporation, entitling the holder to vote at shareholders' meetings and to receive dividends.

Syndicate

A group of underwriters formed to reduce the risk and help to sell an issue.

Group of Underwriters

A team of financial institutions or individuals that jointly take on the risk of issuing new securities by purchasing them from the issuer and selling them to the public.

Reduce Risk

Strategies and measures employed by individuals or companies to minimize the exposure to financial loss or operational failures.