Your Company Has Been Offered Credit Terms on Its Purchases

question 72

Multiple Choice

Your company has been offered credit terms on its purchases of 4/30,net 90.What will be the approximate cost of trade credit if your company pays on the 35th day after receiving the invoice?

• A) 30%
• B) 300%
• C) 3%
• D) 87%
• E) 156%

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Definitions:

Profitability

The ability of a firm to earn income.

Days' Sales

A financial metric that compares a company's average receivables to its average daily sales, indicating how fast the company collects payments from customers.

Inventory

The total quantity of goods and materials a business holds for the purpose of resale or production.

Cost of Goods Sold

The total cost of manufacturing or purchasing the products a company has sold during a specific period.