Parsons Company has a cash flow problem. The company owes its suppliers $300,000 on credit
terms of 2/10 net 40, but Parsons doesn't have the cash to pay during the discount period. Parsons,
however, can borrow the $300,000 at annual rate of 24%.
Should Parsons borrow the money to pay
its accounts payable?
A) Yes, the effective cost of forgoing the discount is greater than 24%.
B) No, the effective cost of forgoing the discount is equal to 24%, and there are transactions costs
associated with borrowing.
C) No, additional borrowing will cost more for interest ($60,000 per year) than the discount is
worth.
D) It doesn't matter because the present value of the cost of borrowing is exactly equal to the
amount of the discount for paying within 10 days.
A
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Xavier and Yolanda have original investments of $50,000 and $100,000, respectively, in a partnership. The articles of partnership include the following provisions regarding the division of net income: interest on original investment at 10; salary allowances of $38,000 and $28,000, respectively; and the remainder to be divided equally. How much of the net income of $77,000 is allocated to Xavier?
a. $66,000 b. $41,000 c. $36,000 d. $43,000
An expenditure to lengthen the useful life of a company vehicle would require a
A) credit to Company Vehicles. B) debit to Repair and Maintenance Expense. C) debit to Depreciation Expense. D) debit to Accumulated Depreciation.
A new shampoo advertisement on television tells all of the wonderful benefits the consumer will enjoy when using one company's shampoo as opposed to another shampoo. What is this company seeking to convey in this television commercial?
A) the product's time utility B) the product's distinctive competency C) the company's production orientation D) the company's marketing segmentation process E) the product's differential benefits
Firms should try to show the value of unsought products through promotion because people do not want them or know that they are available.
Answer the following statement true (T) or false (F)