Suppose you are the CFO of a small company. Your supplier gives you two credit options. The first option allows you to wait 45 days to pay your invoice. The second option gives you a 5% discount off your invoice if you pay for your goods in 10 days. Which credit option should you choose?

		Option 1
		Option 2
		You would be indifferent between the two options.
		Cannot be determined

QUESTION 3

Trade credit can allow companies to finance short-term assets with short term debt.

True

False

QUESTION 4

Generally, as a firm increases its use of short-term debt or current liabilities,

liquidity will increase

liquidity will decrease

liquidity will remain the same

cannot be determined.

QUESTION 6

Suppose your firms re-investment rate is 25%, and trade credit terms of 1/5 net 60 are offered by a supplier from which you purchased $7,000 worth of goods. Late fees are 60%. When should you repay the trade credit obligation?

		on receipt
		on day 5
		on day 60
		on day 61