If a Company Is Given Credit Terms of 2/10, N/30

question 75

Multiple Choice

If a company is given credit terms of 2/10, n/30, it should

• A)hold off paying the bill until the end of the credit period, while investing the money at 10% annual interest during this time.
• B)pay within the discount period and recognize a savings.
• C)pay within the credit period but don't take the trouble to invest the cash while waiting to pay the bill.
• D)recognize that the supplier is desperate for cash and withhold payment until the end of the credit period while negotiating a lower sales price.

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Definitions:

Spot Rate

The immediate market value at which a particular currency can be acquired or disposed of.

Forward Contract

A financial derivative that represents a contract between two parties to buy or sell an asset at a specified future date for a price that is agreed upon today.

Fair Value Hedge

A hedging strategy used to mitigate risk by matching the fair value of an asset or liability through a financial derivative.

Merchandise Inventory

Goods held by a business for the purpose of sale to customers in the ordinary course of business.