Which Statement Concerning the Average Settlement Period for Accounts Payable

question 18

Multiple Choice

Which statement concerning the average settlement period for accounts payable is correct?

• A)It is always best for the business to make creditors wait for their money for as long as possible.
• B)It is best to pay accounts payable as quickly as possible.
• C)Accounts payable provide a free source of finance for a business.
• D)A change in the accounts payable turnover period of 56 days to 65 days means that accounts payable are being paid faster.

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Definitions:

Unlevered Cost of Capital

The cost of capital for a company that has no debt, reflecting the returns required by equity owners alone.

Annual Coupon

The total interest payments made to bondholders each year, expressed as a percentage of the bond's face value.

Debt

Debt refers to the amount of money borrowed by one party from another, subject to repayment along with interest, used by businesses and governments to finance operations or projects.

Leveraged Capital Structure

A financial structure of a company that involves a significant amount of debt in its capitalization, increasing potential returns to equity holders but also risk.