This scenario relates to three requirements.Nesud Co has credit sales of $45 million per year and on average settles accounts with tradepayables after 60 days. One of its suppliers has offered the company an early settlement discountof 0.5% for payment within 30 days. Administration costs will be increased by $500 per year if theearly settlement discount is taken. Nesud Co buys components worth $1.5 million per year fromthis supplier.From a different supplier, Nesud Co purchases $2.4 million per year of Component K at a price of$5 per component. Consumption of Component K can be assumed to be at a constant ratethroughout the year. The company orders components at the start of each month in order to meetdemand and the cost of placing each order is $248.44. The holding cost for Component K is$1.06 per unit per year.The finance director of Nesud Co is concerned that approximately 1% of credit sales turn intoirrecoverable debts. In addition, she has been advised that customers of the company take anaverage of 65 days to settle their accounts, even though Nesud Co requires settlement within 40days.Nesud Co finances working capital from an overdraft costing 4% per year. Assume there are 360days in a year.(a) Evaluate whether Nesud Co should accept the early settlement discount offered byits supplier.Edit Format100%X11 ✓ B% ¹1/2A1FHIJ1~ 32410567891011121314151617181920AI UBсD.00EOFG4||

Answered: Image /qna-images/answer/d9f07397-9678-4a19-b2cb-b7c619020ca5.jpg

payables after 60 days. One of its suppliers has offered the company an early settlement di of 0.5% for payment within 30 days. Administration costs will be increased by $500 per yea early settlement discount is taken. Nesud Co buys components worth $1.5 million per year this supplier. From a different supplier, Nesud Co purchases $2.4 million per year of Component K at a p $5 per component. Consumption of Component K can be assumed to be at a constant rate throughout the year. The company orders components at the start of each month in order to demand and the cost of placing each order is $248-44. The holding cost for Component K $1.06 per unit per year. The finance director of Nesud Co is concerned that approximately 1% of credit sales turn in irrecoverable debts. In addition, she has been advised that customers of the company take average of 65 days to settle their accounts, even though Nesud Co requires settlement with days. Nesud Co finances working capital from an overdraft costing 4% per year. Assume there ar days in a year.

payables after 60 days. One of its suppliers has offered the company an early settlement di of 0.5% for payment within 30 days. Administration costs will be increased by $500 per yea early settlement discount is taken. Nesud Co buys components worth $1.5 million per year this supplier. From a different supplier, Nesud Co purchases $2.4 million per year of Component K at a p $5 per component. Consumption of Component K can be assumed to be at a constant rate throughout the year. The company orders components at the start of each month in order to demand and the cost of placing each order is $248-44. The holding cost for Component K $1.06 per unit per year. The finance director of Nesud Co is concerned that approximately 1% of credit sales turn in irrecoverable debts. In addition, she has been advised that customers of the company take average of 65 days to settle their accounts, even though Nesud Co requires settlement with days. Nesud Co finances working capital from an overdraft costing 4% per year. Assume there ar days in a year.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 13P

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Question

This scenario relates to three requirements.
Nesud Co has credit sales of $45 million per year and on average settles accounts with trade
payables after 60 days. One of its suppliers has offered the company an early settlement discount
of 0.5% for payment within 30 days. Administration costs will be increased by $500 per year if the
early settlement discount is taken. Nesud Co buys components worth $1.5 million per year from
this supplier.
From a different supplier, Nesud Co purchases $2.4 million per year of Component K at a price of
$5 per component. Consumption of Component K can be assumed to be at a constant rate
throughout the year. The company orders components at the start of each month in order to meet
demand and the cost of placing each order is $248.44. The holding cost for Component K is
$1.06 per unit per year.
The finance director of Nesud Co is concerned that approximately 1% of credit sales turn into
irrecoverable debts. In addition, she has been advised that customers of the company take an
average of 65 days to settle their accounts, even though Nesud Co requires settlement within 40
days.
Nesud Co finances working capital from an overdraft costing 4% per year. Assume there are 360
days in a year.
(a) Evaluate whether Nesud Co should accept the early settlement discount offered by
its supplier.
Edit Format
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1. ABC Co has credit sales of $45 million per year and on average settles accounts with trade payables after 60 days. One of its suppliers has offered the company an early settlement discount of 0·5% for payment within 30 days. Administration costs will be increased by $500 per year if the early settlement discount is taken. ABC Co buys components worth $1·5 million per year from this supplier. From a different supplier, ABC Co purchases $2·4 million per year of Component L at a price of $5 per component. Consumption of Component L can be assumed to be at a constant rate throughout the year. The company orders components at the start of each month in order to meet demand and the cost of placing each order is $248·44. The holding cost for Component L is $1·06 per unit per year. The finance director of ABC Co is concerned that approximately 1% of credit sales turn into irrecoverable debts. In addition, she has been advised that customers of the company take an average of 65 days to…
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