Fundamentals of Corporate Finance with Connect Access Card
11th Edition
ISBN: 9781259418952
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Chapter 20, Problem 6CRCT
Summary Introduction
To discuss: The length of credit period.
Introduction:
Credit period length refers to number of days for which credit is offered.
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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.)
Q4
Problem C: Effective Cost of Trade Payables:ABC has a major supplier that offers a credit term of 2/15, n/60. Cash can be temporarily invested for a return of 3%.Required: Compute for the effective rate of the payable for each of the following independent cases:
Chapter 20 Solutions
Fundamentals of Corporate Finance with Connect Access Card
Ch. 20.1 - Prob. 20.1ACQCh. 20.1 - Prob. 20.1BCQCh. 20.2 - What considerations enter into the determination...Ch. 20.2 - Explain what terms of 3/45, net 90 mean. What is...Ch. 20.3 - Prob. 20.3ACQCh. 20.3 - Explain how to estimate the NPV of a credit policy...Ch. 20.4 - What are the carrying costs of granting credit?Ch. 20.4 - What are the opportunity costs of not granting...Ch. 20.4 - Prob. 20.4CCQCh. 20.5 - Prob. 20.5ACQ
Ch. 20.5 - Prob. 20.5BCQCh. 20.6 - Prob. 20.6ACQCh. 20.6 - What is an aging schedule?Ch. 20.7 - What are the different types of inventory?Ch. 20.7 - What are three things to remember when examining...Ch. 20.7 - Prob. 20.7CCQCh. 20.8 - Prob. 20.8ACQCh. 20.8 - Which cost component of the EOQ model does JIT...Ch. 20.A - Prob. 1ACQCh. 20.A - Prob. 1BCQCh. 20.A - Evaluating Credit Policy [LO2] Bismark Co. is in...Ch. 20.A - Credit Policy Evaluation [LO2] The Johnson Company...Ch. 20.A - Prob. 3QPCh. 20.A - Prob. 4QPCh. 20.A - Prob. 5QPCh. 20 - What is the difference between the accounts...Ch. 20 - Prob. 20.2CTFCh. 20 - Prob. 20.7CTFCh. 20 - Prob. 1CRCTCh. 20 - Prob. 2CRCTCh. 20 - Prob. 3CRCTCh. 20 - Five Cs of Credit [LO1] What are the five Cs of...Ch. 20 - Prob. 5CRCTCh. 20 - Prob. 6CRCTCh. 20 - Prob. 7CRCTCh. 20 - Prob. 8CRCTCh. 20 - Prob. 9CRCTCh. 20 - Prob. 10CRCTCh. 20 - Prob. 1QPCh. 20 - Size of Accounts Receivable [LO1] The Red Zeppelin...Ch. 20 - Prob. 3QPCh. 20 - Prob. 4QPCh. 20 - Terms of Sale [LO1] A firm offers terms of 1/10,...Ch. 20 - Prob. 6QPCh. 20 - Prob. 7QPCh. 20 - Prob. 8QPCh. 20 - Evaluating Credit Policy [LO2] Air Spares is a...Ch. 20 - Prob. 10QPCh. 20 - Prob. 11QPCh. 20 - Prob. 12QPCh. 20 - Prob. 13QPCh. 20 - Prob. 14QPCh. 20 - Prob. 15QPCh. 20 - Prob. 16QPCh. 20 - Prob. 17QPCh. 20 - Prob. 18QPCh. 20 - Prob. 19QPCh. 20 - Prob. 20QPCh. 20 - Prob. 21QPCh. 20 - Prob. 22QPCh. 20 - Credit Policy at Howlett Industries Sterling...Ch. 20 - Prob. 2M
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- Given the following data; TOTAL SALES OMR 250000 CASH SALES OMR 125000 SALES RETURN OMR 5000 OPENING SUNDRY DEBTORS OMR 20000 CLOSING SUNDRY DEBTORS OMR 10000What will be the Net credit sales? a.OMR 245000 b.OMR 200000 c.OMR 125000 d.OMR 120000arrow_forwardAssume the credit terms offered to your firm by your suppliers are 4/15, net 30. Calculate the cost of the trade credit if your firm does not take the discount and pays on day 30arrow_forward25 [Question text] Credit and collection policies affect all of the following EXCEPT _____________________. Select one: A. level of sales B. length of time before credit sales are collected C. pricing policies D. terms of salesarrow_forward
- 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 abovearrow_forwardProblem B: Cost of Trade Credit ABC has a major supplier that offers a credit term of 2/15, n/45. Cash not yet used for payments are generally kept in an account that earns ABC 2.5% per year. Use 360 days in a year. Compute for the following: 1. Simple annual effective cost of paying on 45th day instead of the 15th day. 2. Compounded annual effective cost of paying on 45th day instead of the 15th day. 3. Should ABC pay on the 15th day or 45th day? Topic: Short-term Financing Decisions-Working Capital Management (Cash and Payables) Kindly base the answers on the topic above.arrow_forwardIf a firm's supplier has a 3/10/60 credit policy, the cost of trade credit per period is equal to O a. 3.09% O b. 22.58% OC 3% O d. 97% O e. None of the abovearrow_forward
- A company's investment in receivables is influenced by several variables, including: 10701 3 Multiple Choice U Celeste The level of sales. The nature of the product or service sold. The credit and collection policies. All of these answer choices are correct. Saved < Prev 36 of 75 333 Next >arrow_forwardProvide solution for this questionarrow_forward3.-DO IT IN EXCEL, AND SHOW THE FORMULASThe main supplier of Productos Adiós, S.A., offers you the option of a Cash Discount of 1.5% if you pay before two weeks. You should seriously evaluate this alternative to try to be more efficient in your accounts payable. You can use the direct lending facility that charges interest in advance, at a rate of 14.5% and an origination fee of 1%.This supplier's billing is $450,000 for a one-month term. What is the difference between the supplier's discount and the sum of commission and interest on the financing? A) $476.39 B) None of the above C) $660.87 D) $2,904.26arrow_forward
- choose the letter of the correct answer Log Company’s credit sales are P300,000, and the collection period is 90 days. Cost is 70 percent of selling price. Determine Log's average investment in accounts receivable. a. P32,500.00b. P42,500.00c. P52,500.00d. P62,500.00e. P72,500.00arrow_forwardLO 6.1 What do credit terms of 4/10, n/30 mean in regard to a purchase? 3LO 6.1 What is the difference between a sales return and a sales allowance? 4LO 6.1 If a retailer made a purchase in the amount of $350 with credit terms of 2/15, n/60. What would the retailer pay in cash if they received the discount? 5LO 6.2 What are two advantages and disadvantages of the perpetual inventory system? 6.LO 6.2 What are two advantages and disadvantages of the periodic inventory system?arrow_forward6. Question 6 The attached table shows financial data (year 2009) for two US retailers: Save-A-Lot Retailers and Wally’s Mart. Assume that both companies have an average annual holding cost rate of 20% (i.e. it costs both retailers $2 to hold an item for one entire year that they procured for $10). How many days, on average, does a product stay in Save-A-Lot’s inventory before it is sold? Assume that stores operate 365 days a year.arrow_forward
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