Fill in the blank with the correct answer Green Moose Industries buys on terms of2.5/15, net 45 from its chief supplier. SupposeGreen Moose does not take advantage of thediscount and the average. On average, GreenMoose will pay its supplier on the 50th dayafter the sale. As a result, Green Moose candecrease its nominal cost of trade credit byby paying late.

Step 1: Define Cash discountCash discount indicates a form of reward provided to the buyers if the…

Answered: Green Moose Industries buys on terms 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

Chapter23: Other Topics In Working Capital Management

Section: Chapter Questions

Problem 8MC

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Assume the credit terms offered to your firm by your suppliers are 2/20, net 40. Calculate the cost of the trade credit if your firm does not take the discount and pays on day 40. (Hint: Use a 365-day year.)
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RAF has four possible suppliers, all of which offer different credit terms. Except for the differences in credit terms, their products and services are virtually identical. The credit terms offered by these suppliers are shown in the following table. (Note: Assume a 365-day year.) Supplier Credit terms J 1/10 net 30 EOM K 2/20 net 80 EOM L 1/20 net 60 EOM M 3/10 net 55 EOM Calculate the approximate cost of giving up the cash discount from each supplier. If the firm needs short-term funds, which are currently available from its commercial bank at 16%, and if each of the suppliers is viewed separately, which, if any, of the suppliers’ cash discounts should the firm give up? Explain why.
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