Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
15th Edition
ISBN: 9780134476315
Author: Chad J. Zutter, Scott B. Smart
Publisher: PEARSON
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Chapter 16, Problem 16.6P

a)

Summary Introduction

To determine: The cost of giving up the early payment discount from each supplier.

Introduction:

Credit term refers to customer’s ability to acquire goods before making payment, depends on the trust that payment will be paid in future.

b)

Summary Introduction

To discuss: The current availability from the commercial bank when the firm requires short-term financing.

Introduction:

An external type of financing that have a shorter time span for repaying the loan back is termed as short-term financing. This type of financing has less interest rate as compared to the long-term financing. Every company relies on short-term financing from external sources.

c)

Summary Introduction

To discuss: The impact on taking the discount or giving up the early payment discount when the firm stretches by 30 days its accounts payable.

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Prairie Manufacturing has four possible​ suppliers, all of which offer different credit terms. Except for the differences in credit​ terms, their products and services are virtually identical. The credit terms offered by these suppliers are shown in the following​ table: LOADING... (Note​: Assume a​ 365-day year.)   Supplier     Credit terms       J          2/15 net 40 EOM      K         2/20 net 80 EOM      L          1/10 net 60 EOM      M         3/10 net 100 EOM   a. Calculate the approximate cost of giving up the cash discount from each supplier.   b. If the firm needs​ short-term funds, which are currently available from its commercial bank at 10​%, and if each of the suppliers is viewed separately​, ​which, if​ any, of the​ suppliers' cash discounts should the firm give​ up?     c. Now assume that the firm could stretch by 30 days its accounts payable​ (net period​ only) from supplier M. What​ impact, if​ any, would that have on your answer in part b relative to this​…
YVONE Trading requests credit terms from its trade supplier, Mestle Corporation. YVONE operates 360 days a year. The trade supplier offers two credit terms to YVONE as follows: Credit term number 1: 2/15, net 30 Credit term number 2: 1/10, net 90 Required: 1. Compute the nominal cost of forgoing the cash discount of the two credit terms. 2. Compute the effective cost of credit of the two terms. 3. If the prevailing bank interest rate is 15% of the nominal rate, which credit term should be bypassed to use the money as the source of financing? Discuss your answer briefly. (with solution)
Cost of trade credit   Firms usually offer their customers some form of trade credit. This allowance comes with certain terms of credit. These terms will affect the cost of the asset for both the buyer and the seller. Consider the following case: Blue Elk Manufacturing buys most of its raw materials from a single supplier. This supplier sells to Blue Elk on terms of 2/15, net 45. The cost per period of the trade credit extended to Blue Elk, rounded to two decimal places, is___________%   Blue Elk’s trade credit has a nominal annual cost—expressed as an annual percentage rate (APR)—of_________%, assuming a 365-day year. (Note: Round all intermediate calculations to four decimal places, and your final answer to two decimal places.)   If Blue Elk’s supplier shortens the discount period by five days, this will _____________(Increase or decrease pick one) the cost of the trade credit.

Chapter 16 Solutions

Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)

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