When a firm stretches accounts payable without hurting its credit rating, the cost of giving up a cash discount is ________.
A) reduced
B) increased
C) unaffected
D) increased or decreased depending on the opening accounts payable balance

Question

Quizplus · Accepted Answer

By stretching accounts payable, the firm can delay payment and hold onto cash longer. This can reduce the cash outflows for the firm, ultimately reducing the cost of giving up a cash discount. Therefore, the cost is reduced.

When a Firm Stretches Accounts Payable Without Hurting Its Credit