Answered: ABC Co. has a credit purchase of…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter21: Supply Chains And Working Capital Management

Section: Chapter Questions

Problem 10P: The D.J. Masson Corporation needs to raise $500,000 for 1 year to supply working capital to a new...

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ABC Co. has a credit purchase of P40,000 with terms 2/10 net 30 with its supplier. Based on past experience, ABC Co. can manage to pay on the 40t day without penalty. The management of ABC Co. is pondering whether to avail the discount or not. ABC Co. has the following options of raising cash in case it wants to avail the discount:
A. Convert its short term investments which is currently earning 14% per year. Transaction cost is estimated at 2%.
B. Obtain a P40,000 discounted loan from PI which offers a discounted loan for 20 days at a cost of P320.
IF the management makes the right decision, how much is the least possible cost
(expressed in % to be incurred related to the trade credit?

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