A firm with sales of $10,000,000 has inventory of $800,000. The firm has no cash sales (all sales are oncredit and are collected within 39 days). You are willing to sell inventory to the firm on credit providedthat you will be paid within 90 days. Should you sell to this firm on credit? Assume there are 365 days ina year. (This question is more subtle than it appears. Think through all the given information.) Round youranswer to the nearest whole number.On average, it will take yousell to the firm on credit.days to receive the payments, therefore, you -Select-

The operating cycle of a firm is time period from the purchase of raw materials till the receipt of…

Answered: On average, it will take you sell to…

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On average, it will take you sell to the firm on credit. days to receive the payments, therefore, you -Select-

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Concept explainers

Cost of Credit

The cost of credit is an extra amount that the borrower has to pay besides the loan amount. These credit charges may vary from loan to loan. The cost of credit includes interest charges, maintenance charges, and arrangement charges. Some of the costs are mandatorily collected by the lender based on the loan amount and tenure of the loan. The cost of credit is also called finance charges of the credit.

Question

A firm with sales of $10,000,000 has inventory of $800,000. The firm has no cash sales (all sales are on
credit and are collected within 39 days). You are willing to sell inventory to the firm on credit provided
that you will be paid within 90 days. Should you sell to this firm on credit? Assume there are 365 days in
a year. (This question is more subtle than it appears. Think through all the given information.) Round your
answer to the nearest whole number.
On average, it will take you
sell to the firm on credit.
days to receive the payments, therefore, you -Select-

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1. What are the advantages and disadvantages of offering credit? 2. What precautions should she take before offering credit to people like John? 3. If Kate grants credit to John, the terms will be 2/10, n/30. Assuming the payment is made during the 10-day discount period, what would be the journal entry to record the sale and then subsequent payment? 4. If instead of playing early John pays in 25 days, what would the journal entry to record the payment? 5. Rather than providing the financing directly, assume that Kate decides to allow the use of credit cards. Further, assume that during the month there is 15,000 worth of credit cards sales. Provide the journal entry to record the sales, along with the associated credit card fee. The cost of goods sold total is 13,500.

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