Jenkins Security Has Learned That a Rival Has Offered to Supply

question 62

Multiple Choice

Jenkins Security has learned that a rival has offered to supply a parking garage with security for ten years for $45,000 up front and a further $15,000 per year. If Jenkins Security offers to provide security for eight years for an upfront cost of $60,000 and a separate yearly payment, by what maximum amount can this yearly payment be over $20,000, so that Jenkins' offer matches the equivalent annual annuity of their rival's offer? (Assume a cost of capital of 5%.)

• A) -$89
• B) -$94
• C) -$100
• D) -$111

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Definitions:

Cash Cycle

The period of time it takes for a company to convert its investments in inventory back into cash, reflecting how efficiently a company manages its assets.

Credit Terms

Credit terms are the conditions under which a seller extends credit to a buyer, specifying the repayment period, discount for early payment, and applicable interest charges.

Liberal Credit Terms

Credit conditions that are more favorable to the borrower, such as longer repayment periods or lower interest rates.