Company You Just Started Has Been Offered Credit Terms of 4/30

question 35

Multiple Choice

company you just started 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:

Liability

Legal obligations related to finances that a business incurs throughout its operational processes.

Accounting Equation

The fundamental equation of double-entry bookkeeping: Assets = Liabilities + Owner's Equity.

Cash

Money in the form of currency that can include bills, coins, and balances in bank accounts that are readily available for use.

Owner's Capital Account

A financial record that represents the owner's invested capital plus the total earnings minus the withdrawals made by the owner.