Multiple Choice
A firm faces a liquidity crunch and must decide between borrowing from a bank at 12% interest or stretching its payables for one quarter. If it stretches the payables it will forgo a 2% discount for timely payment. Based solely on cash flows, which would you suggest?
A) Stretching saves the firm approximately 8% per year.
B) Use the bank loan; forgoing a cash discount is costly.
C) Stretch the payables and finance at a savings of approximately 3.75% annually.
D) Use the bank loan because it represents simple interest.
Correct Answer:
Verified
Correct Answer:
Verified
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