Construction Accounting And Financial Management (4th Edition)
4th Edition
ISBN: 9780135232873
Author: Steven J. Peterson MBA PE
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 16, Problem 52P
A supplier has offered your company a 0.5% discount for all bills that are paid 10 days after they are billed. The bills would normally be due 30 days after they are billed. What is the return on paying the bills early? If your company can borrow funds from a line of credit at a yield of 8%, is it financially attractive to pay the bills early? The line of credit requires a compensating balance.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
A supplier will give Shark Unibase Company a discount of 2% if an invoice is paid 60 days before its due date. Suppose Shark wants to take advantage of this discount but needs to borrow the money. It plans to pay back the loan in 60 days. What is the highest annual simple interest rate at which Shark Unibase can borrow the money and still save by paying the invoice 60 days before its due date?
At the Central Furniture Company, customers who buy on credit pay an effective annual interest rate of 16.1%, based on monthly compounding. (a) What is the nominal annual interest rate that they pay? (b) Research the effective annual interest rates charged on a credit card that you or a friend has. How does the rate change if there is a late or skipped payment? What drives these rates? Are the rates ethical? Why or why not?
You have just purchased new goods worth 100,000 EUR from your supplier. Your supplier offers you to pay within 35 days. If you pay within the first 8 days, you get a discount of 1.2%. When would you pay? Why? What is the effective interest rate? Under which circumstances would you take the trade credit?
Chapter 16 Solutions
Construction Accounting And Financial Management (4th Edition)
Ch. 16 - Prob. 1DQCh. 16 - What is the annual percentage yield (APY)?Ch. 16 - What is the difference between fixed and variable...Ch. 16 - Prob. 4DQCh. 16 - What is the purpose of a subordination clause in a...Ch. 16 - Prob. 6DQCh. 16 - What is maturity matching?Ch. 16 - What is an amortization schedule?Ch. 16 - What is a good faith estimate?Ch. 16 - How do closing costs affect the effective interest...
Ch. 16 - Prob. 11DQCh. 16 - What is a compensating balance and how does it...Ch. 16 - What is a commitment fee and how does it affect...Ch. 16 - Why would a lender require that a line of credit...Ch. 16 - What is trade financing?Ch. 16 - Prob. 16PCh. 16 - Determine the interest due on a 15,000 short-term...Ch. 16 - Determine the quarterly, monthly, and daily...Ch. 16 - Determine the quarterly, monthly, and daily...Ch. 16 - Determine the interest rate for a billing period...Ch. 16 - Determine the interest rate for a billing period...Ch. 16 - Determine the APY for an APR of 10% for quarterly...Ch. 16 - Determine the APY for an APR of 7% for quarterly...Ch. 16 - Determine the APY for a loan that charges a...Ch. 16 - Determine the APY for a loan that charges a...Ch. 16 - Determine the monthly payment for a 30-year real...Ch. 16 - Determine the monthly payment for a 60-month truck...Ch. 16 - Determine the monthly payment for a 30-year real...Ch. 16 - Determine the monthly payment for a 60-month truck...Ch. 16 - Prob. 30PCh. 16 - Determine the monthly payment for a 60-month truck...Ch. 16 - Determine the monthly payment for a 30-year real...Ch. 16 - Determine the monthly payment for a 60-month truck...Ch. 16 - Determine the monthly payment for a 30-year real...Ch. 16 - Determine the monthly payment for a 60-month truck...Ch. 16 - The bank charges 4,000 for closing costs on a...Ch. 16 - Prob. 37PCh. 16 - The bank charges 4,000 for closing costs on a...Ch. 16 - Prob. 39PCh. 16 - Your company has an existing loan with monthly...Ch. 16 - Prob. 41PCh. 16 - Prob. 42PCh. 16 - Determine the effective annual interest rate on a...Ch. 16 - Determine the effective annual interest rate on a...Ch. 16 - Determine the effective annual interest rate on a...Ch. 16 - How much interest would be charged on a line of...Ch. 16 - How much interest would be charged on a line of...Ch. 16 - Determine the actual annual interest rate on a...Ch. 16 - Determine the actual annual interest rate on a...Ch. 16 - Determine the effective annual interest rate on an...Ch. 16 - Determine the effective annual interest rate on a...Ch. 16 - A supplier has offered your company a 0.5%...Ch. 16 - A supplier has offered your company a 1% discount...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- A store will give you a 2.25% discount on the cost of your purchase if you pay cash today. Otherwise, you will be billed the full price with payment due in 1 month. What is the implicit borrowing rate being paid by customers who choose to defer payment for the month?arrow_forwardA payday lender might lend you $350 now, and you'll be asked to pay them back when your paycheck comes. Of course, you'll have to pay interest. The median fee charged by these types of lenders is $15 per every 100 borrowed. How much would you have to pay back in ten days?arrow_forwardGupta & Grant Computer Supplies usually tries to take advantage of cash discounts even if it must borrow the money for a few days in order to pay the invoice in time. Compute the savings on Gupta & Grant's purchases and terms from the supplier. Use a 365-day year. Assume that the number of interest days is the time between the due date and the last date to take advantage of the cash discount. Interest Rate Days Amount Cash on of of Invoice Terms Discount Loan Interest Interest Savings $1,725 2/15, n/60 9.5% O 34.50; 45 days; $20.20; $14.30 $34.50; 60 days; $26.94; $7.56 O $34.50; 45 days; $19.80; $14.70 O $34.50; 60 days; $26.40; $8.10arrow_forward
- A supplier is offering your firm a cash discount of 2 percent if purchases are paid for within ten days; otherwise, the bill is due at the end of 60 days. Would you recommend borrowing from a bank at an 18 percent annual interest rate to take advantage of the cash discount offer? Yes Noarrow_forwardA consumer loan requires monthly payments, in equal amounts, $700.00. The next payment is due in one month. Assume that the appropriate discount rate is 21% (APR). What is the effective annual rate? (show them in excel spreadsheet, write your own present value formulas, don't use Excel built-in functions.arrow_forwardSuppose your Visa credit card charges an APR of 13.5%, compounded monthly and your current statement shows a balance of $758.50.a) If you make no payments and no additional purchases for one year, what will bethe amount owed at the end of that year?b) How much total interest will be paid?c) What is the nominal rate?d) What is the effective annual rate (EAR)?e) Suppose this credit card company requires a minimum monthly payment of $25.Assuming that no additional purchases are made and also assuming that this minimum amount is paid every month, prepare an amortization schedule for the first three months of payments.arrow_forward
- You have a credit card with an APR of 36%. The minimum payment is 10% of the balance. Suppose you have a balance of $800. You decide to stop charging and make only the minimum payment. The initial payment will be 10% of $800, or $80. Calculate the minimum payment for the next two months. (Be sure to take into account the finance charges.)arrow_forwardYou owe $7200 on a credit card, your company says the minimum payment is 3% of what you owe. How long would it take you to pay it off just paying the minimum at 22% APR?arrow_forwardA discount electronics store advertises the following financing arrangement: “We don’t offer you confusing interest rates. We’ll just divide your total cost by 11 and you can pay us that amount each month for a year.” The first payment is due on the date of sale and the remaining eleven payments at monthly intervals thereafter. Calculate the effective annual interest rate the store’s customers are paying on their loans. Report your answer to the nearest two decimal places (i.e., x.xx).arrow_forward
- Your firm sells for cash only, but it is thinking of offering credit, allowing customers 90 days to pay. Customers understand the time value of money, so they would all walt and pay on the 90th day. To carry these receivables, you would have to borrow funds from your bank at a nominal 8%, dally compounding based on a 360-day year. You want to increase your base prices by exactly enough to offset your bank interest cost. To the closest whole percentage point, by how much should you raise your product prices? Do not round Intermediate calculations. Round your answer to the nearest whole number. %arrow_forwardCredit terms. As manager of Fly-by-Night Airlines, you decide to allow customers 90 days to pay their bills. To encourage early payment, though, you allow them to reduce their bills by 1.9% if they pay within the first 56 days. At what implied effective annual interest rate are you loaning money to your customers? What if you extend the discount to 55 days and allow full payment up to 180 days? At what implied effective annual interest rate are you loaning money to your customers? (Round to two decimal places.)arrow_forwardA bank charges you, the credit card holder, 13.24% compounding monthly. Imagine that you have accumulated debt in an amount of $4,000. Your credit card statement shows a minimum monthly payment of $20.00. Assuming you wise up and realize that you better pay off your debt before charging on your card again, how long would it take to pay off the debt completely if you were to make the minimum payments? How long would it take if you were to make a monthly payment of $50.00?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
The management of receivables Introduction - ACCA Financial Management (FM); Author: OpenTuition;https://www.youtube.com/watch?v=tLmePnbC3ZQ;License: Standard YouTube License, CC-BY