What Is the Effective Annual Cost of Credit Terms of 3/15

question 88

Multiple Choice

What is the effective annual cost of credit terms of 3/15 net 30, if the firm stretches the accounts payable to 60 days?

• A) 1.7%
• B) 3.35%
• C) 12.65%
• D) 28.03%

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Definitions:

Productive Efficiency

A situation in which a firm or economy produces goods at the lowest possible cost, utilizing all available resources efficiently.

Allocative Efficiency

A state of the market where resources are allocated in a way that maximizes total consumer and producer surplus.

Oligopolistic Industry

A market structure characterized by a small number of firms dominating the industry, leading to limited competition.

Collude

To cooperate or conspire, especially in a secretive way, with others to deceive or cheat.