In this problem, use the approximation formula to find the cost of trade credit.A firm's payments policy calls for stretching payments to its supplier, who sells on terms of 3/20, net 60.Payment is made in 90 days, and the cash saved is invested in a money market mutual fund paying 12 percent interest.This policy is a net ____.

A)Profitable; gain of about 9 percent on the funds involved.
B)Profitable; gain of about 12 percent on the funds involved.
C)Unprofitable; loss of about 4 percent on the funds involved.
D)Unprofitable; loss of about 9 percent on the funds involved.
E)Insufficient information to solve.

Question

In this problem, use the approximation formula to find the cost of trade credit.A firm's payments policy calls for stretching payments to its supplier, who sells on terms of 3/20, net 60.Payment is made in 90 days, and the cash saved is invested in a money market mutual fund paying 12 percent interest.This policy is a net ____.

A)Profitable; gain of about 9 percent on the funds involved. 
B)Profitable; gain of about 12 percent on the funds involved. 
C)Unprofitable; loss of about 4 percent on the funds involved. 
D)Unprofitable; loss of about 9 percent on the funds involved. 
E)Insufficient information to solve.

Quizplus · Accepted Answer

The Answer of In this problem, use the approximation formula to find the cost of trade credit.A firm's payments policy calls for stretching payments to its supplier, who sells on terms of 3/20, net 60.Payment is made in 90 days, and the cash saved is invested in a money market mutual fund paying 12 percent interest.This policy is a net ____.

A)Profitable; gain of about 9 percent on the funds involved. 
B)Profitable; gain of about 12 percent on the funds involved. 
C)Unprofitable; loss of about 4 percent on the funds involved. 
D)Unprofitable; loss of about 9 percent on the funds involved. 
E)Insufficient information to solve.

In This Problem, Use the Approximation Formula to Find the Cost