Question
In: Finance
4. Cost of trade credit Firms usually offer their customers some form of trade credit. This...
4. Cost of trade credit
Firms usually offer their customers some form of trade credit. This allowance comes with certain terms of credit, which will affect the actual cost of asset being sold for the buyer and the seller.
Consider this case:
Tasty Tuna Corporation buys most of its raw materials from a single supplier. This supplier sells to Tasty Tuna on terms of 1/15, net 60.
a. The cost per period of the trade credit extended to Tasty Tuna is __________? A. 0.81% B. 0.89% C.1.15% D. 1.01%
(Note: Round all intermediate calculations to four decimal places, and your final answer to two decimal places.).
b. Tasty Tuna’s trade credit has a nominal annual cost of _____________ , assuming a 365-day year. A. 5.73% B.7.37% C.9.66% D 8.19%
(Note: Round all intermediate calculations to four decimal places, and your final answer to two decimal places.)
c. If Tasty Tuna Corporation’s supplier shortens its discount period to five days, this will __________ the cost of the trade credit. Decrease or Increase
Solutions
jeff jeffy answered 7 months agoRelated Solutions
16. Cost of trade credit Firms usually offer their customers some form of trade credit. This...
16. Cost of trade credit
Firms usually offer their customers some form of trade credit.
This allowance comes with certain terms of credit, which affect the
cost of asset of sale for the buyer as well as the seller.
Consider this case:
Free Spirit Industries Inc. buys on terms of 2.5/15, net 45 from
its chief supplier.
If Free Spirit receives an invoice for $1,545.78, what would be
the true price of this invoice?
$2,110.00
$1,281.07
$1,507.14
$1,582.50
The nominal...
Firms usually offer their customers some form of trade credit. This allowance comes with certain terms of credit, which affect the cost of asset of sale for the buyer as well as the seller.
Firms usually offer their customers some form of trade credit.
This allowance comes with certain terms of credit, which affect the
cost of asset of sale for the buyer as well as the seller.Consider this case:Tasty Tuna Corporation buys on terms of 2.5/15, net 60 from its
chief supplier.If Tasty Tuna receives an invoice for $1,545.78, what would be
the true price of this invoice?$1,356.43$1,205.71$1,130.36$1,507.14The nominal annual cost of the trade credit extended by the
supplier is . (Note: Assume...
Explain the trade credit facility provided by some companies to their customers that allow them to...
Explain the trade credit facility provided by some companies to
their customers that allow them to manage their day-to-day
liquidity situation and calculate the opportunity cost of an
invoice that specifies the following conditions, as shown below (a.
– c.): a) conditions: 1.25/10, n/30. b) conditions: 1.25/10, n/60.
c) conditions: 1.5/10, n/60
Proposal #1 would extend trade credit to some customers that previously have been denied credit because...
Proposal #1 would extend trade credit to some customers
that previously have been denied credit because they were
considered poor risks. Sales are projected to
increase by $200,000 per year if credit is extended to these new
customers. Of the new accounts receivable generated, 6%
are projected to be uncollectible. Additional collection
costs are projected to be 5% of incremental sales, and production
and selling costs are projected to be 78% of sales. Your
firm expects to pay a total of 30% of its...
Proposal #1 would extend trade credit to some customers that previously have been denied credit because...
Proposal #1 would extend trade credit to some customers
that previously have been denied credit because they were
considered poor risks. Sales are projected to increase
by $200,000 per year if credit is extended to these new customers.
Of the new accounts receivable generated, 6% are projected to be
uncollectible. Additional collection costs are projected to be 5%
of incremental sales, and production and selling costs are
projected to be 78% of sales. Your firm expects to pay a total...
Proposal #1 would extend trade credit to some customers that previously have been denied credit because...
Proposal #1 would extend trade credit to some customers
that previously have been denied credit because they were
considered poor risks. Sales are projected to increase
by $200,000 per year if credit is extended to these new customers.
Of the new accounts receivable generated, 6% are projected to be
uncollectible. Additional collection costs are projected to be 5%
of incremental sales, and production and selling costs are
projected to be 78% of sales. Your firm expects to pay a total...
Proposal #1 would extend trade credit to some customers that previously have been denied credit because...
Proposal #1 would extend trade credit to some customers that
previously have been denied credit because they were considered
poor risks. Sales are projected to increase by $150,000 per year if
credit is extended to these new customers. Of the new accounts
receivable generated, 7% are projected to be uncollectible.
Additional collection costs are projected to be 3% of incremental
sales (whether they actually end up collected or not), and
production and selling costs are projected to be 80% of...
Proposal #1 would extend trade credit to some customers that previously have been denied credit because...
Proposal #1 would extend trade credit to some customers that
previously have been denied credit because they were considered
poor risks. Sales are projected to increase by $150,000 per year if
credit is extended to these new customers. Of the new accounts
receivable generated, 7% are projected to be uncollectible.
Additional collection costs are projected to be 3% of incremental
sales (whether they actually end up collected or not), and
production and selling costs are projected to be 80% of...
Proposal #1 would extend trade credit to some customers that previously have been denied credit because...
Proposal #1 would extend trade credit to some customers
that previously have been denied credit because they were
considered poor risks. Sales are projected to increase
by $200,000 per year if credit is extended to these new customers.
Of the new accounts receivable generated, 6% are projected to be
uncollectible. Additional collection costs are projected to be 5%
of incremental sales, and production and selling costs are
projected to be 78% of sales. Your firm expects to pay a total...
Proposal #1 would extend trade credit to some customers that previously have been denied credit because...
Proposal #1 would extend trade credit to some customers
that previously have been denied credit because they were
considered poor risks. Sales are projected to increase
by $240,000 per year if credit is extended to these new customers.
Of the new accounts receivable generated, 6% are projected to be
uncollectible. Additional collection costs are projected to be 2%
of incremental sales (whether they actually end up collected or
not), and production and selling costs are projected to be 78% of...
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