Case summary:
Chief financing officer of Company RR, a speciality coffee manufacturer, is re-thinking about its working capital policy and wants to re-new its line of credit and it wouldn’t ready to build payroll, probably forcing the company out of business.
The scare has forced the company to examine carefully about each component of working capital to make sure it is required, and decide whether the goal is to determine the line of credit are often eliminated entirely.
Previously, it has done little to look at assets and mainly because of poor communication among business functions and the decisions about working capital cannot be made at vacuum.
To determine: Amount of free trade credit that company get from its supplier, amount of costly trade credit and nominal annual interest rate and should the company take discounts or not.
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Intermediate Financial Management
- If a firm buys on terms of 3/15, net 45, but actually pays on the 20th day and still takes the discount, what is the nominal cost of its nonfree trade credit? Does it receive more or less credit than it would if it paid within 15 days?arrow_forwardA firm buys on terms of 2/10, net 30, but generally does not pay until 40 days after the invoice date. Its purchases totaled $1,095,000 per year. How much “non-free” trade credit does the firm use on average each year? What is the nominal cost of “non-free” trade credit? What is the effective cost rate of the costly credit?arrow_forwardAssume the credit terms offered to your firm by your suppliers are 2/15, net 30 . Calculate the cost of the trade credit if your firm does not take the discount and pays on day 30 . (Hint: Use a 365 -day year.)arrow_forward
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- Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning