Which one of the following strategies would continue to be effective if a cash-strapped firm determines that the effective interest rate charged on trade credit is lower than the bank's interest rate?
A) Take the discount but pay after the discount period.
B) Borrow from the bank and take the discount.
C) Ignore the discount, pay at the end of the period.
D)Take the discount and hope for longer payment float.

Question

Quizplus · Accepted Answer

If the effective interest rate on trade credit is lower than the bank's interest rate, it is more cost-effective for the firm to ignore the discount and pay at the end of the period, as this minimizes financing costs.

Which One of the Following Strategies Would Continue to Be