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

Analyze the impacts of various health behaviors and attitudes on the progress and management of diseases.

Understand the relationship between pay systems and individual or group productivity.

Analyze the effectiveness of different pay systems (such as piece rate, variable pay, and merit pay) on worker productivity and cooperation.

Recognize the impact of financial incentives and pay-for-performance on employee turnover and performance.

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Definitions:

Purchasing Cycle

A series of steps that a company goes through to acquire goods or services, from the identification of a need to the approval of the invoice for payment.

Operating Cycle

The period of time it takes for a business to acquire inventory, sell it, and convert the sale into cash.

Merchandising Cycle

The process involved in buying and selling goods, including purchasing inventory, selling to customers, and managing cash and credit transactions.

Largest Current Asset

Typically refers to the current asset in a company's balance sheet that represents the highest value, commonly either cash or accounts receivable.