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What would be average payables and the nominal cost

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Cash Discounts

Suppose a firm makes purchases of $3.65 million per year under terms of 2/10, net 30, and takes discounts.

Question a. What is the average amount of accounts payable net of discounts?

(Assume the $3.65 million of purchases is net of discounts - that is, gross purchases are $3,724,489, discounts are $74,489.80, and net purchases are $3.65 million.)

Question b. Is there a cost of the trade credit the firm uses?

Question c. If the firm did not take discounts but did pay on the due date, what would be its average payables and the nominal and effective costs of this nonfree trade credit?

Question d. What would be the firm's nominal and effective costs of not taking discounts if it could stretch its payments to 40 days?

Reference no: EM132519208

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