Provide solution for this question What is the nominal cost of trade credit ifthe terms are 3/10, net 40 assuming thatcustomers forego the discount and pay onthe 40th day?a) 35.9%b) 36.4%c) 37.6%d) 38.2%

Explanation of Trade Credit Terms (e.g., 3/10, net 40)Trade credit terms define the conditions under…

Answered: What is the nominal cost of trade…

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter16: Supply Chains And Working Capital Management

Section: Chapter Questions

Problem 8P

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Captain Whitman Ship Supplies offers terms of 3/15, net 45. If a purchaser takes the discount and pays on the 10th day, what is the nominal cost of trade credit? Now suppose a purchaser actually pays on the 20th day but still takes the discount. What is the actual nominal cost of the trade credit?
If a firm buys on terms of 3/15, net 45, but actually pays on the 20th day and still takes the discount, what is the nominal cost of its nonfree trade credit? Does it receive more or less credit than it would if it paid within 15 days?
None
If a firm's supplier has a credit policy of 1/10/45, what is the nominal cost of trade credit? a. 1% b. 99% c. 10.83% d. 11.05% e. None of the above
2A. Catz Corp. sells its goods with terms of 3/10 EOM, net 45. What is the implicit cost of the trade credit? (Do not round itermediate calculations. Use 365 days for calculation. Round answer to 2 decimal places, e.g. 12.25%.) The implicit cost of the trade credit is _________ %.
If your supplier offers 3/5 net 28, what is the implied interestrate if you choose to forgo the discount and pay on day 28?
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Cost of Trade Credit If a firm buys under terms of 1/15, net 60, but actually pays on the 20th day and still takes the discount, what is the nominal cost of its nonfree trade credit? Assume a 365-day year. Do not round intermediate calculations. Round your answer to two decimal places. % Does it receive more or less credit than it would if it paid within 15 days? I. Paying before the discount period and taking the discount gives the firm more credit than it would receive if it paid within 15 days.II. Paying after the discount period, but still taking the discount gives the firm more credit than it would receive if it paid within 15 days.III. Paying after the discount period, but still taking the discount gives the firm less credit than it would receive if it paid within 15 days. -Select-IIIIII
Assume the credit terms offered to your firm by your suppliers are 2/15, net 30 . Calculate the cost of the trade credit if your firm does not take the discount and pays on day 30 . (Hint: Use a 365 -day year.)
(Related to Checkpoint 18.2) (Evaluating trade credit discounts) If a firm buys on trade credit terms of 5/15, net 90 and decides to forgo the trade credit discount and pay on the net day, what is the annualized cost of forgoing the discount (assume a 365-day year)? The annualized cost of the trade credit terms of 5/15, net 90 is %. (Round to two decimal places.)
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.)
The expression “2/10, net 45” means that the customers receive a 2% discount if they pay within 10 days; otherwise, they must pay in full within 45 days. What would the seller's cost of capital have to be in order for the discount to be cost justified? 24.8571% 19.8571% 20.8571% 23.8571%

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What is the nominal cost of trade credit if the terms are 3/10, net 40 assuming that customers forego the discount and pay on the 40th day? a) 35.9% b) 36.4% c) 37.6% d) 38.2%