Pets Store Inc. sells on terms of 2/15, net 50. What is theeffective annual cost...

Pets Store Inc. sells on terms of 2/15, net 50. What is the effective annual cost of trade credit under these terms? Use a 365-day year.

Round the answer to two decimal places in percentage form. (Write the percentage sign in the "units" box)

Solutions

Expert Solution

2/15 , net 50 . It means that if the bill is paid within 15 days, there is a 2 % discount. Otherwise, the total amount is due within 50 days.

periodic rate = 2 % / (100 % - 2%) = 2.041 %

periods / year= 365 / (50- 15 ) = 10.429

Effective Cost of trade credit = (1 +periodic rate)^ no. periods - 1

= [(1 +(0.02041)^10.249] - 1

= [(1.02041)^10.429] - 1

= 1.2346 - 1

= 0.2346 i.e 23.46 %

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

Pets Store Inc. sells on terms of 1/20, net 65. What is the effective annual cost...

Pets Store Inc. sells on terms of 1/20, net 65. What is the effective annual cost of trade credit under these terms? Use a 365-day year.

Book Depot Inc. sells on terms of 3/20, net 45. What is theimplicit cost of...

Book Depot Inc. sells on terms of 3/20, net 45. What is the implicit cost of trade credit under these terms? Use a 365-day year.Round the answer to two decimal places in percentage form. (Write the percentage sign in the "units" box)

Tech Industries sells on terms 2/15, net 45. Total sales for the year are $1,200,000. Forty...

Tech Industries sells on terms 2/15, net 45. Total sales for the year are $1,200,000. Forty percent of customers pay on the 15th day and takes discounts, the other 60% pay on average, 50 days after their purchases. Support your below answers showing the calculations. What is the days sales outstanding? What is the average amount of receivables? What would happen to average receivables if Tech industries toughened its collection policy with the result that all non-discount customers paid on...

Sampson Co. sold merchandise to Batson Co. on account, $26,800, terms 2/15, net 45. The cost...

Sampson Co. sold merchandise to Batson Co. on account, $26,800, terms 2/15, net 45. The cost of the goods sold is $20,100. The Batson Co. paid the invoice within the discount period. Assume both Sampson and Batson use a perpetual inventory system. Prepare the entries that Sampson Company would record for the information above. a. Accounts Receivable-Batson Co.: Sales: b. Cost of Goods Sold: 20,100 Inventory: 20,100 c. Cash: Accounts Receivable-Batson Co.: Prepare the entries that Batson Company would record...

Trix Company sells to grocery stores on credit terms of "net 60." Annual credit sales are...

Trix Company sells to grocery stores on credit terms of "net 60." Annual credit sales are $11 million (spread evenly throughout the year) and its accounts average 10 days overdue. The firm's variable cost ratio is 0.75 (i.e., variable costs are 75% of sales). Suppose that Trix's sales are expected to increase by 32% next year. Determine the firm's average investment in receivables for next year under these conditions. Enter your answers in millions and round to the second decimal...

Kyoto Joe, Inc., sells earnings forecasts for Japanese securities. Its credit terms are 2/20, net 40.

Kyoto Joe, Inc., sells earnings forecasts for Japanese securities. Its credit terms are 2/20, net 40. Based on experience, 60 percent of all customers will take the discount.a. What is the average collection period for the company?(Use 365 days a year. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)b. If the company sells 1,540 forecasts every month at a price of $1,320 each, what is its average balance sheet amount in accounts receivable?...

2. The credit terms are; 3/15 with a net date of 45 days (show work): a....

2. The credit terms are; 3/15 with a net date of 45 days (show work): a. Calculate the interest savings associated with taking this discount: b. The Notes Payable or short-term borrowing rate is 5%. Should the discount be taken? c. Given your answer in part b, when should the purchasing company pay the bill?

Milberg Manufacturing sells on terms of 2/10, net 30. Total sales for the year are ...

Milberg Manufacturing sells on terms of 2/10, net 30. Total sales for the year are $3,500,000. Twenty five percent of customers pay on the 10th day and take discounts; the other 75% pay, on average, 45 days after their purchases. a. What is the days sales outstanding? b. What is the average amount of receivables? c. What would happen to average receivables if Snider toughened its collection policy with the result that all nondiscount customers...

Adams Manufacturing Inc. buys $11.4 million of materials (net of discounts) on terms of 2/10, net...

Adams Manufacturing Inc. buys $11.4 million of materials (net of discounts) on terms of 2/10, net 50; and it currently pays after 10 days and takes the discounts. Adams plans to expand, which will require additional financing. If Adams decides to forgo discounts, how much additional credit could it obtain? Enter your answer as a positive value. Do not round intermediate calculations. Round your answer to the nearest cent. Use 365 day in a year. ? $ What would be...

Adams Manufacturing Inc. buys $11.9 million of materials (net of discounts) on terms of 2/10, net...

Adams Manufacturing Inc. buys $11.9 million of materials (net of discounts) on terms of 2/10, net 50; and it currently pays after 10 days and takes the discounts. Adams plans to expand, which will require additional financing. If Adams decides to forgo discounts, how much additional credit could it obtain? Assume 365 days in year for your calculations. Do not round intermediate calculations. Round your answer to the nearest cent. $ What would be the nominal and effective cost of...

Subjects