Your Company Has Been Offered Credit Terms of 4/30,net 90

question 65

Multiple Choice

Your company has been offered credit terms of 4/30,net 90 days.What will be the nominal annual percentage cost of its non-free trade credit if it pays 120 days after the purchase? (Assume a 365-day year.)

• A)16.05%
• B)16.90%
• C)17.74%
• D)18.63%
• E)19.56%

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Definitions:

Indifferent

A state of having no preference between two or more options, showing neither favor nor disfavor.

Variable Costs

Costs that vary directly with the level of production or sales volume.

Average Costs

The total costs (fixed and variable) of production divided by the total quantity of output, indicating the cost of producing each unit.

Fixed Costs

Costs that do not vary with the level of output or sales, such as rent, salaries, and loan payments.