Financial Management: Theory & Practice
16th Edition
ISBN: 9781337909730
Author: Brigham
Publisher: Cengage
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Textbook Question
Chapter 16, Problem 8P
Captain Whitman Ship Supplies offers terms of 3/15, net 45.
- a. If a purchaser takes the discount and pays on the 10th day, what is the nominal cost of trade credit?
- b. 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?
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Which of the following terms of trade credit is the more expensive?
a. A 3 percent cash discount if paid on the 15th day with bill due on the 45th day (3/15, net 45)
b. A 2 percent cash discount if paid on the 10th day with the bill due on the 30th day (2/10, net 30)
What do the credit terms, 2/15, n/30 mean?
Multiple Choice
O
A two percent discount can be deducted if the invoice is paid after the fifteenth day following the sale, but before the thirtieth day.
A two percent discount can be deducted if the invoice is paid before the fifteenth day following the date of the sale.
A fifteen percent discount can be deducted if the invoice is paid within two days following the date of sale.
A two percent discount can be deducted for a period up to thirty days following the date of sale.
A company has offered you credit terms of 3/20 net 60. The annual percentage cost to you of foregoing
the discount is
а. 54%
b. 27%
с. 18%
d. 36%
e. None of the above
*Please show work!
Chapter 16 Solutions
Financial Management: Theory & Practice
Ch. 16 - Define each of the following terms:
Working...Ch. 16 - What are the two principal reasons for holding...Ch. 16 - Prob. 3QCh. 16 - Prob. 4QCh. 16 - Prob. 5QCh. 16 - Prob. 6QCh. 16 - Prob. 7QCh. 16 - Prob. 8QCh. 16 - What kinds of firms use commercial paper?
Ch. 16 - Prob. 1P
Ch. 16 - Medwig Corporation has a DSO of 17 days. The...Ch. 16 - What are the nominal and effective costs of trade...Ch. 16 - Prob. 4PCh. 16 - Prob. 5PCh. 16 - Snider Industries sells on terms of 2/10, net 45....Ch. 16 - Calculate the nominal annual cost of trade credit...Ch. 16 - Captain Whitman Ship Supplies offers terms of...Ch. 16 - Grunewald Industries sells on terms of 2/10, net...Ch. 16 - The D.J. Masson Corporation needs to raise...Ch. 16 - Negus Enterprises has an inventory conversion...Ch. 16 - Prob. 12PCh. 16 - Payne Products had 1.6 million in sales revenues...Ch. 16 - Dorothy Koehl recently leased space in the...Ch. 16 - Prob. 15PCh. 16 - Prob. 16PCh. 16 - The Raattama Corporation had sales of 3.5 million...Ch. 16 - Start with the partial model in the file Ch16 P18...Ch. 16 - Prob. 1MCCh. 16 - Prob. 2MCCh. 16 - Prob. 3MCCh. 16 - Is there any reason to think that RR may be...Ch. 16 - Prob. 5MCCh. 16 - Johnson knows that RR sells on the same credit...Ch. 16 - Prob. 7MCCh. 16 - Prob. 8MCCh. 16 - What is the impact of higher levels of accruals,...Ch. 16 - Assume that RR purchases $200,000 (net of...Ch. 16 - Prob. 11MCCh. 16 - Prob. 12MCCh. 16 - Prob. 13MCCh. 16 - Prob. 14MCCh. 16 - Prob. 15MCCh. 16 - In an attempt to better understand RR’s cash...
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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.Similar questions
- Calculate the nominal annual cost of nonfree trade credit under each of the following terms. Assume that payment is made either on the discount date or on the due date. a. 1/15, net 20 b. 2/10, net 60 c. 3/10, net 45 d. 2/10, net 45 e. 2/15, net 40arrow_forwardWhich of the following numbers represents the discount percentage applied if a customer pays within a discount window and credit terms are 3/15, n/60? A. 3 B. 15 C. 60 D. 3 and 15arrow_forwardHillz sells its goods with terms of 1/16 EOM, net 30. What is the implicit cost of the trade credit? (Do not round intermediate calculations. Use 365 days for calculation. Round answer to 2 decimal places, e.g. 12.25%.)arrow_forward
- What are the nominal and effective costs of trade credit under the credit terms of 2/20, net 40? Assume a 365-day year. Do not round intermediate calculations. Round your answers to two decimal places. Nominal cost of trade credit: % Effective cost of trade credit: %arrow_forwardWhich one of the following statements is correct if you purchase an item with credit terms of 3/15, net 45? Multiple Choice One-third of your purchase is due in 15 days and the rest is due in 45 days. If you pay within 15 days, you will receive a discount of 3 percent. If you pay within 3 days, you will receive a discount of 15 percent. If you do not pay within 15 days, you will be charged Interest at a rate of 3 percent per month. If you pay 3 percent of your purchases within 15 days, you will have 45 days to pay for the remainder.arrow_forwardSelect the items below that match the term: Credit terms of 2/10, n/30 A. the seller offers the purchaser a 2% cash discount regardless of when bill is paid B. the full amount is due in 30 days. C. the seller offers the purchaser a 2% cash discount if bill is paid within 30 days D. the seller offers the purchaser a 2% cash discount if bill is paid within 10 days Select all that apply.arrow_forward
- You place and order for 100 units of inventory at a unit price of P 50.00. The supplier offers terms of 3/30, net 90. How long do you have to pay before the account is overdue? If you take the full period, how much should you remit? How much is the discount offered? How quickly must you pay to get the discount? If you take the discount, how much should you remit? If you don’t take the discount, how much interests are you paying implicitly? How many days’ credit are you receiving?arrow_forward1) Trade credit terms of 2/10, net 90 are available. Calculate the cost of trade credit whenpayment is made on the net due date using the APR. Use a 360 day year 2) Trade credit terms of 2/10, net 90 are available. Calculate the cost of trade credit whenpayment is made on the net due date using the EAR (also known as APY). Use a 360day year.arrow_forwardhat are the nominal and effective costs of trade credit under the credit terms of 2/20, net 40? Assume a 365-day year. Do not round intermediate calculations. Round your answers to two decimal places. Nominal cost of trade credit: % Effective cost of trade credit:arrow_forward
- Outback Sporting Goods purchases merchandise on termsof 4/10, n/60. The company has a line of credit that enablesit to borrow money as needed from Northern Bank at anannual interest rate of 13 percent. Should Outback pay itssuppliers within the 10-day discount period if it must drawon its line of credit (borrow from Northern Bank) to makethese early payments? Explain.arrow_forwardCullumber 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 My answer was wrong ... can someone help me with this please?arrow_forwardIf a firm is given a trade credit terms of 2/15, net 30, then the cost to the firm failing to take the discount is (use 360 days)arrow_forward
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