Use the Information to Answer the Following Question(s)

question 1

Multiple Choice

Use the information to answer the following question(s) .
SureDrip Irrigation Systems Inc. is supplied with plastic chips for their plastic injection molding manufacturing process. Their supplier, Sun Chemical, Inc. offers financing terms of a 2% discount if the accounts payable are paid in 10 days or less with the full balance due in 45 days. Short-term financing available to SureDrip is available at an annual rate of 9.6%. SureDrip has just purchased $400,000 of plastic chips from Sun Chemical.
-Refer to Instruction 21.1. Should SureDrip take the discount offered by Sun Chemical?

• A)Yes, SureDrip will get to use their raw materials 35 days earlier than if they waited to pay at the end of the 45 days.
• B)No, SureDrip will not have to pay any interest if they just pay in 45 days.
• C)Yes, SureDrip's short term borrowing rate of 9.6% is less than Sun's offered cost of carry of 22.9%.
• D)No, it costs SureDrip 22.9% to accept the discount and they are better off paying the full amount in 45 days.

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Definitions:

Net Income

The amount of money remaining after all operating expenses, taxes, and interest have been deducted from total revenue.

Total Assets

The sum of all assets owned by a company, including cash, inventory, property, and equipment.

Dividend Payout

The portion of net income paid to shareholders as dividends, usually expressed as a percentage.

Full Capacity

The maximum level of output that a business can sustain over a period of time, utilizing all available resources efficiently.