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:

Monopolistically Competitive

Refers to a market structure where many firms sell products that are similar but not identical, allowing for some degree of market power.

Fixed Costs

Expenses that do not change with the level of production or sales, such as rent, salaries, or insurance.

Short Run

A period in economics during which at least one input is fixed, limiting the ability of a firm to adjust its production levels.

Monopolistically Competitive

refers to a market structure where many firms sell products that are similar but not identical, allowing for some degree of market power and promotional differentiation.