Which of the Following Statements Is Correct

question 32

Multiple Choice

Which of the following statements is correct?

• A) If a firm begins buying on terms of 2/20,net 60,after having bought on terms of 2/10,net 30,this will,other things held constant,probably lengthen its cash conversion cycle.
• B) If a firm begins buying on terms of 2/20,net 60,after having bought on terms of 2/10,net 30,this will,other things held constant,increase the cost of nonfree (costly)trade credit.
• C) Because the loan is paid off faster,the effective interest rate is lower if a firm borrows $100,000 on the basis of a 10% "add-on interest rate" loan paid off in 12 equal monthly installments than if the firm borrows the $100,000 on a loan which calls for a nominal 10% rate and for all interest and principal to be paid (repaid)at the end of one year.
• D) "Commercial paper" is the name given to a type of short-term loan typically used by firms that are too small and financially weak to obtain credit from banks and other normal sources of credit.
• E) Statements a,b,c,and d are all false.