CFA Practice Question

There are 120 practice questions for this study session.

CFA Practice Question

When should a rational financial manager pay a bill if 1) a discount is offered, 2) the discount has not yet expired, 3) the firm needs to borrow funds to take the discount, 4) the firm will have sufficient cash by the end of the net period, and 5) the best possible borrowing rate exceeds the cost of forgoing the discount?
A. As soon as possible after the discount date so as to not upset the supplier
B. No sooner than six months, so as to maximize the use of "free" trade credit financing
C. On the final due date
Explanation: The supplier has made only the full net period available to the firm; thus, the firm should choose the least costly method, which is to pay on the final due date. Taking extra time will cause supplier and possible legal problems.

User Contributed Comments 2

User Comment
jacojacobs The question states that the discount has not yet expired, but the explanation states that the supplier has made only the full net period available to the firm. Is this not contradicting?
Haoran It is not contradicting.
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