Summit Manufacturing purchased $750,000 of inventory from its supplier under credit terms of 2/10, net 45. Assuming that Summit Manufacturing can take advantage of the cash discount by paying on day 10 and using a 360- day year: a. Calculate Summit Manufacturing's average monthly accounts payable balance, assuming the current accounts payable is at gross value (no discount taken). b. If Summit Manufacturing decides to forego the early discount and pay at the end of the credit period, what would be its accounts payable balance? c. What is the opportunity cost (annualized) of not taking the cash discount?
Summit Manufacturing purchased $750,000 of inventory from its supplier under credit terms of 2/10, net 45. Assuming that Summit Manufacturing can take advantage of the cash discount by paying on day 10 and using a 360- day year: a. Calculate Summit Manufacturing's average monthly accounts payable balance, assuming the current accounts payable is at gross value (no discount taken). b. If Summit Manufacturing decides to forego the early discount and pay at the end of the credit period, what would be its accounts payable balance? c. What is the opportunity cost (annualized) of not taking the cash discount?
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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Financial Accounting Question
Transcribed Image Text:Summit Manufacturing purchased $750,000 of inventory
from its supplier under credit terms of 2/10, net 45.
Assuming that Summit Manufacturing can take advantage
of the cash discount by paying on day 10 and using a 360-
day year:
a. Calculate Summit Manufacturing's average monthly
accounts payable balance, assuming the current accounts
payable is at gross value (no discount taken).
b. If Summit Manufacturing decides to forego the early
discount and pay at the end of the credit period, what
would be its accounts payable balance?
c. What is the opportunity cost (annualized) of not taking
the cash discount?
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