Intermediate Financial Management
14th Edition
ISBN: 9780357516782
Author: Brigham, Eugene F., Daves, Phillip R.
Publisher: Cengage Learning
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Cost of Trade Credit
What are the nominal and effective costs of trade credit under the credit terms of 1/10, net 40? Assume a 365-day year. Do not round intermediate calculations. Round your answers to two decimal places.
Nominal cost of trade credit: %
Effective cost of trade credit: %
Assuming that you are a retail merchandiser. You bought goods from wholesale merchandise under the credit terms of 2/10 n/30. What do you mean by n/30 under the credit term?
a.
maximum discount 10%
b.
maximum Credit days 30
c.
maximum Credit days 10
d.
maximum discount 30%
6. The purchasing document should also specify when payment is due. This is usually expressed as a net number of days, such as Net 30 or Net 45. A discount period may be included where the supplier specifies the amount of the discount as well as the number of days the buyer can make payments and still earn the discount. The discount period is often expressed as a formula: 2/20 Net 45
Chapter 21 Solutions
Intermediate Financial Management
Ch. 21 - a. Working capital; net working capital; net...Ch. 21 - Prob. 2QCh. 21 - Is it true that, when one firm sells to another on...Ch. 21 - What are the four elements of a firm’s credit...Ch. 21 - Prob. 5QCh. 21 - Prob. 6QCh. 21 - Prob. 7QCh. 21 - Is it true that most firms are able to obtain some...Ch. 21 - What kinds of firms use commercial paper?Ch. 21 - Prob. 1P
Ch. 21 - Medwig Corporation has a DSO of 17 days. The...Ch. 21 - What are the nominal and effective costs of trade...Ch. 21 - A large retailer obtains merchandise under the...Ch. 21 - A chain of appliance stores, APP Corporation,...Ch. 21 - Prob. 6PCh. 21 - Calculate the nominal annual cost of nonfree trade...Ch. 21 - Prob. 8PCh. 21 - Grunewald Industries sells on terms of 2/10, net...Ch. 21 - The D.J. Masson Corporation needs to raise...Ch. 21 - Negus Enterprises has an inventory conversion...Ch. 21 - Strickler Technology is considering changes in its...Ch. 21 - Dorothy Koehl recently leased space in the...Ch. 21 - Suppose a firm makes purchases of $3.65 million...Ch. 21 - The Thompson Corporation projects an increase in...Ch. 21 - The Raattama Corporation had sales of $3.5 million...Ch. 21 - Karen Johnson, CFO for Raucous Roasters (RR), a...Ch. 21 - Prob. 2MCCh. 21 - Prob. 3MCCh. 21 - Prob. 4MCCh. 21 - Prob. 5MCCh. 21 - Prob. 6MCCh. 21 - Prob. 7MCCh. 21 - Prob. 8MCCh. 21 - What is the impact of higher levels of accruals,...Ch. 21 - Prob. 10MCCh. 21 - Prob. 11MCCh. 21 - Prob. 12MCCh. 21 - Prob. 13MCCh. 21 - Prob. 14MCCh. 21 - Prob. 15MCCh. 21 - Prob. 16MC
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- Captain Whitman Ship Supplies offers terms of 3/15, net 45. If a purchaser takes the discount and pays on the 10th day, what is the nominal cost of trade credit? Now suppose a purchaser actually pays on the 20th day but still takes the discount. What is the actual nominal cost of the trade credit?arrow_forwardWhich of the following numbers represents the discount percentage applied if a customer pays within a discount window and credit terms are 3/15, n/60? A. 3 B. 15 C. 60 D. 3 and 15arrow_forwardA company has offered you credit terms of 3/20 net 60. The annual percentage cost to you of foregoing the discount is а. 54% b. 27% с. 18% d. 36% e. None of the above *Please show work!arrow_forward
- If a firm's supplier has a credit policy of 1/10/45, what is the nominal cost of trade credit? a. 1% b. 99% c. 10.83% d. 11.05% e. None of the abovearrow_forward2. A certain product payment offers 30/25 / 18/ 5 discounts. What is the total net price rate? 3. What is the price difference if a net price of Php 1,456.80 has a single discount of 40 % and a discount series of 20 % , 15 % , 5 %. 4. Compare the discount offer between a discount series of 20 % ,15 % and 10 % and a single discount of 45 % 5. Which discount will you chose in buying the same brand of air conditioning unit of Php 10,800. A discount of 15 % and 5 % or a discount of 10 % , 8 % , and 5%.arrow_forwardPLEASE SHOW ALL WORK 14. Series discounts are a form of trade discount. (T or F) For Problems 15-19 assume that you purchase goods with a list price of $455 and a trade discount of 25%. The invoice is dated October 3 with terms of 3/15, n/45. 15. What is the net price after trade discount? 16 What is the last day you can take a cash discount? 17. What is the net amount due if you pay within the discount period? 18. If you do not pay within the discount period, what is the final date to pay the invoice? October 3 is day number 276; 19. If you do not pay within the discount period, what annual interest rate are you, in effect, paying the supplier? Express the rate with two decimal placesarrow_forward
- If a firm's supplier has a 3/10/60 credit policy, the cost of trade credit per period is equal to O a. 3.09% O b. 22.58% OC 3% O d. 97% O e. None of the abovearrow_forward1) Trade credit terms of 2/10, net 90 are available. Calculate the cost of trade credit whenpayment is made on the net due date using the APR. Use a 360 day year 2) Trade credit terms of 2/10, net 90 are available. Calculate the cost of trade credit whenpayment is made on the net due date using the EAR (also known as APY). Use a 360day year.arrow_forwardOutback Sporting Goods purchases merchandise on termsof 4/10, n/60. The company has a line of credit that enablesit to borrow money as needed from Northern Bank at anannual interest rate of 13 percent. Should Outback pay itssuppliers within the 10-day discount period if it must drawon its line of credit (borrow from Northern Bank) to makethese early payments? Explain.arrow_forward
- Current Attempt in Progress Your answer is incorrect. Carla Vista Corporation sells its goods with terms of 3/17 EOM, net 60. What is the implicit cost of the trade credit? (Do not round itermediate calculations. Use 365 days for calculation. Round answer to 2 decimal places, e.g. 12.25%.) The implicit cost of the trade credit is %.arrow_forward1.3 REQUIRED Use the information given below to determine the cost (as a percentage, expressed to two decimal places) to Ascot Traders of not accepting the discount. INFORMATION Max Wholesalers granted credit terms of 60 days to Ascot Traders but the wholesaler is prepared to allow a discount of 2.5% if the account is settled within 15 days.arrow_forwardA customer pays on credit for $1,250 worth of merchandise, terms 4/15, n/30. If the customer pays within the discount window, how much will they remit in cash to the retailer? A. $1,250 B. $1,200 C. $50 D. $500arrow_forward
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