What Is the Effective Cost of Credit Terms of 3/5

question 16

Multiple Choice

What is the effective cost of credit terms of 3/5 net 45 if the firm stretches the accounts payable to 60 days?

• A) 12.9%
• B) 35.6%
• C) 39.9%
• D) 22.4%

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Definitions:

Property, Plant, and Equipment

Long-term assets used in the operations of a business, not intended for sale.

Insurance

A financial product that provides protection against financial losses from specific risks, such as accidents, theft, or natural disasters.

Depreciation

A method to allocate the cost of a tangible asset over its useful life.

Utilities

Services such as electricity, gas, water, and sewer that are used by businesses and households, often considered basic necessities.