Suppose a firm makes purchases of $3.65 million per year under terms of 2/10, net 30, and takes discounts. a. What is the average amount of accounts payable net of discounts? (Assume the $3.65 million of purchases is net of discounts-that is, gross purchases are $3,724,489.80, discounts are $74,489.80, and net purchases are $3.65 million.) b. Is there a cost of the trade credit the firm uses? c. If the firm did not take discounts but did pay on the due date, what would be its average pavables and the cost of this nonfree trade credit?
Suppose a firm makes purchases of $3.65 million per year under terms of 2/10, net 30, and takes discounts. a. What is the average amount of accounts payable net of discounts? (Assume the $3.65 million of purchases is net of discounts-that is, gross purchases are $3,724,489.80, discounts are $74,489.80, and net purchases are $3.65 million.) b. Is there a cost of the trade credit the firm uses? c. If the firm did not take discounts but did pay on the due date, what would be its average pavables and the cost of this nonfree trade credit?
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
Related questions
Question
100%
Practice Pack
Would you only answer the last question please Thank you !
Transcribed Image Text:(16-15)
Cash Discounts
Suppose a firm makes purchases of $3.65 million per year under terms of 2/10, net 30, and
takes discounts.
a. What is the average amount of accounts payable net of discounts? (Assume the
$3.65 million of purchases is net of discounts-that is, gross purchases
are $3,724,489.80, discounts are $74,489.80, and net purchases are $3.65 million.)
b. Is there a cost of the trade credit the firm uses?
c. If the firm did not take discounts but did pay on the due date, what would be its
average payables and the cost of this nonfree trade credit?
d. What would be the firm's cost of not taking discounts if it could stretch its payments
to 40 days?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Includes step-by-step video
Trending now
This is a popular solution!
Learn your way
Includes step-by-step video
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education