Provide correct answer Langley Clinics, Inc buys $400,000 in medical supplies eachyear (at gross prices) from its major suppliers, consolidatedservices, which offers Langley terms of 2.5/10, net 45. Currently,Langley is paying the supplier the full amount due on day 45 butit is considering taking the discount, paying on day 10, andreplacing the trade credit with a bank loan that has a 10 percentannual cost.a. What is the amount of free trade credit that langley obtainsfrom Consolidated Services? (assume 360 days per yearthroughout this problem)b. What is the amount of costly trade credit?c. What is the approximate annual cost of the costly trade credit?d. Should Langley replace its trade credit with the bank loan?Explain.

a. Free Trade CreditFree Trade Credit is the time between the discount period and the full payment…

Answered: Langley Clinics, Inc buys $400,000 in…

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 10MC

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H4. Resolute Health buys $600,000 of a particular item (at gross prices) from its major supplier, Cardinal Health, which offers Resolute terms of 2/10, net 30. Currently, the hospital is paying the supplier the full amount due on Day 30, but it is considering taking the discount, paying on Day 10 and replacing the trade credit with a bank loan that has a 12 percent rate. Assume 360 days per year. What is the amount of free trade credit that the organization obtains from Cardinal Health? Format is $xx,xxx.xx What is the total amount of trade credit offered by Cardinal? Format is $xx,xxx.xx What is the approximate annual cost of the costly trade credit? Format is xx.xx% Should the organization replace a portion of the trade credit with the bank loan? Format is Yes or No If the bank loan is used, how much of the trade credit should be replaced? Format is $xx,xxx.xx
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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YVONE Trading requests credit terms from its trade supplier, Mestle Corporation. YVONE operates 360 days a year. The trade supplier offers two credit terms to YVONE as follows: Credit term number 1: 2/15, net 30 Credit term number 2: 1/10, net 90 Required: 1. Compute the nominal cost of forgoing the cash discount of the two credit terms. 2. Compute the effective cost of credit of the two terms. 3. If the prevailing bank interest rate is 15% of the nominal rate, which credit term should be bypassed to use the money as the source of financing? Discuss your answer briefly. (with solution)
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A supplier hands you an invoice for $47,000 with the terms 4/20, net 180. a. ) What is the effective annual cost (expressed as an APR) if you forgo the discount and pay after 180 days?b. )What is the effective annual cost (expressed as an APR) if you pay after 200 days?
The original price of a Honda Shadow to the dealer was $17,045, but the dealer will pay only $16,335 after rebate. If the dealer pays Honda within 15 days, there is a 1% cash discount. a. How much is the rebate? Amount of rebate b. What percent is the rebate? Note: Round your answer to the nearest hundredth percent. Percentage of rebate % c. What is the amount of the cash discount if the dealer pays within 15 days? Note: Round your answer to the nearest cent. Amount of cash discount
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A furniture company is offering a choice of deals. You can receive $500 cash back on the purchase, or a 4 percent APR, 2-year loan. The price of the dining room set is $5,000 and you could obtain a 2-year loan from your credit union at 3 percent APR. What is the cost per month of each deal? Multiple Choice cash back: $193.42, 4 percent APR: $217.12 cash back: $193.42, 2 percent APR: $214.91 cash back: $195.41, 2 percent APR: $217.12 cash back: $195.41, 2 percent APR: $214.91
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