Purchasing a profitable supplier increases profit only if
A)You pay equal to the value of the company's inventory
B)You pay higher than the value of the company's future profits
C)You pay lower than the value of the company's discounted future profits
D)You pay lower than the value of the company's undiscounted future profits

Question

​Purchasing a profitable supplier increases profit only if
A)​You pay equal to the value of the company's inventory
B)You pay higher than the value of the company's future profits
C)You pay lower than the value of the company's discounted future profits
D)​You pay lower than the value of the company's undiscounted future profits

Quizplus · Accepted Answer

When purchasing a profitable supplier, it is important to ensure that the purchase price is lower than the discounted future profits of the company. This takes into account the time value of money and provides a more accurate representation of the company's true value. By paying less than the discounted future profits, the buyer can ensure a profit on their investment. Option A is incorrect as it only considers the inventory value and not the company's overall value. Option B is incorrect as paying higher than the value of future profits would result in a loss for the buyer. Option D is incorrect as undiscounted future profits do not take into account the time value of money, which can result in an inaccurate valuation of the company.

​Purchasing a Profitable Supplier Increases Profit Only If

Purchasing a Profitable Supplier Increases Profit Only If