If the firm can obtain a bank loan ________ interest rate,it would be ________ borrowing at that rate and using the cash proceeds of the loan to take advantage of the discount offered by the supplier.

Question

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If the firm can obtain a bank loan at a lower interest rate, it would be better off borrowing at that rate and using the cash proceeds of the loan to take advantage of the discount offered by the supplier. A lower interest rate would mean lower borrowing costs and thus more savings for the firm. Choices A and D may suggest the same idea, but "required rate of return" does not necessarily have to be higher than the supplier's discount rate, and it does not make sense to use a higher interest rate than necessary to borrow. Choice B ("at a required rate of return; worse off") is not a logical option.

If the Firm Can Obtain a Bank Loan ________ Interest