A Firm Is Offered Credit Terms of 1/10 Net 45

question 54

Multiple Choice

A firm is offered credit terms of 1/10 net 45 EOM by a major supplier. The firm has determined that it can stretch the credit period (net period only) by 25 days without damaging its credit standing with the supplier. Assuming the firm needs short-term financing and can borrow from the bank on a line of credit at an interest rate of 14 percent, the firm should ________.

• A) give up the cash discount and finance the purchase with the line of credit
• B) give up the cash discount and pay on the 70th day after the date of sale
• C) take the cash discount and pay on the first day of the cash discount period
• D) take the cash discount and finance the purchase with the line of credit, the cheaper source of funds

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Definitions:

Overnight Travel

Travel that requires staying away from home for at least one night, often for business or work-related purposes.

Sales Manager

An individual who directs an organization's sales team, oversees sales operations, and is responsible for achieving sales targets.

Territorial Evaluation

The process of assessing and analyzing the geographical areas or regions in which a business operates to determine market potential, competition, and customer demographics.

Performance Standards

Benchmarks or specific criteria used to measure and evaluate the effectiveness and efficiency of an employee's performance or a company's operations.