A Company Is Thinking of Borrowing Money at an 18

question 9

True/False

A company is thinking of borrowing money at an 18% annual interest rate in order to pay a $30,000 invoice within the discount period.The invoice terms are 2/10,n/30.They should borrow the money because they will have a net savings of 19.2%.

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Definitions:

Fair Value

The value that could be gained from the sale of an asset or the expense of transferring a liability, in a regulated transaction among market players on the date of assessment.

Asset Acquired

An item of economic value obtained by a company, expected to provide future benefit by generating cash flows or reducing expenses.

Future Service Potential

The potential of an asset to contribute to future operations and cash flows of an organization.

Physical Substance

A characteristic of tangible assets, meaning they have a physical form and can be seen, touched, and measured.