Question

In: Finance

Your company just bought $55,000 in goods from your supplier on trade credit terms 1/10 net...

Your company just bought $55,000 in goods from your supplier on trade credit terms 1/10 net 45. Your opportunity cost of funds is 12%.

  1. On which pay should you pay?
  2. If your supplier is now offering a 3% discount if the payment occurs on delivery. Otherwise, you receive net 45 days. What should you do under these terms?

Solutions

Expert Solution

1/10 net 45 means you get one percent discount when you pay within 10 days.
Otherwise you can pay on 45th day without any discount.

Note: 360 days in a year assumed while calculations.

a. It is better to pay on 45th day.
(Explanation:
10th day Payment: $54,450
45th day Payment: $54,358.33)

b. It is better to pay at the time of purchase.
(Explanation:
At time of purchasePayment: $54,350
45th day Payment: $54,175)

jeff jeffy answered 3 months ago
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