In This Problem,use the Approximation Formula to Find the Cost

question 58

Multiple Choice

In this problem,use the approximation formula to find the cost of trade credit.A firm's payments policy calls for stretching payments to its supplier,who sells on terms of 3/20,net 60.Payment is made in 90 days,and the cash saved is invested in a money market mutual fund paying 12 percent interest.This policy is __________ because the firm has a net __________.

• A) Profitable; gain of about 9 percent on the funds involved.
• B) Profitable; gain of about 12 percent on the funds involved.
• C) Unprofitable; loss of about 4 percent on the funds involved.
• D) Unprofitable; loss of about 9 percent on the funds involved.
• E) Insufficient information to solve.

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Definitions:

Downsizing

The elimination of a significant number of employees from an organization.

Staffing

The hiring of people to carry out the work of the organization.

Organizing

The structuring of resources and activities to accomplish objectives in an efficient and effective manner.