A firm decides to stretch its accounts payable,resulting in an effective annual cost of credit of 22.4%,under terms of 3/15 net 30.When is the firm paying its accounts payable?
A)70 days
B)65 days
C)60 days
D)55 days
E)50 days

Question

Quizplus · Accepted Answer

The correct answer is A. The firm is paying its accounts payable 70 days after the invoice date. This is because the terms of 3/15 net 30 mean that the firm can take a 3% discount if it pays within 15 days, or it can pay the full amount within 30 days. If the firm takes the discount, it is effectively paying the invoice 15 days early, which means it is paying 70 days after the invoice date.

A Firm Decides to Stretch Its Accounts Payable,resulting in an Effective