Cash Discounts Suppose a firm makes purchases of $3.85 million per year under terms of 2/10,...

Cash Discounts Suppose a firm makes purchases of $3.85 million per year under terms of 2/10, net 30, and takes discounts. Assume 365 days in a year for your calculations. Do not round

A. What is the average amount of accounts payable net of discounts? (Assume that the $3.85 million of purchases is net of discounts - that is, gross purchases are $3,928,571, discounts are $78,571, and net purchases are $3.85 million.) Round your answer to the nearest dollar. $

B. Is there a cost of the trade credit the firm uses? Either I or II

I. The cost of the trade credit is $316,438.

II. There is no cost of trade credit at this point. The firm is using "free" trade credit.

C. If the firm did not take discounts but it did pay on the due date, what would be its average payables? Round your answer to the nearest dollar.

D. If the firm did not take discounts but it did pay on the due date, what would be its nominal cost? Round your answer to two decimal places.

E. If the firm did not take discounts but it did pay on the due date, what would be its effective cost? Round your answer to two decimal places.

F. What would the firm's cost of not taking discounts be if it could stretch its payments to 36 days? Round your answers to two decimal places.

Nominal cost = %

Effective cost = %

Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

jeff jeffy answered 2 years ago

Cash Discounts Suppose a firm makes purchases of $3 million per year under terms of 3/10,...

Cash Discounts Suppose a firm makes purchases of $3 million per year under terms of 3/10, net 30, and takes discounts. Assume 365 days in a year for your calculations. Do not round intermediate calculations. What is the average amount of accounts payable net of discounts? (Assume that the $3 million of purchases is net of discounts - that is, gross purchases are $3,092,784, discounts are $92,784, and net purchases are $3 million.) Round your answer to the nearest dollar....

Cash Discounts Suppose a firm makes purchases of $3.55 million per year under terms of 3/10,...

Cash Discounts Suppose a firm makes purchases of $3.55 million per year under terms of 3/10, net 30, and takes discounts. Assume 365 days in a year for your calculations. Do not round intermediate calculations. What is the average amount of accounts payable net of discounts? (Assume that the $3.55 million of purchases is net of discounts - that is, gross purchases are $3,659,794, discounts are $109,794, and net purchases are $3.55 million.) Round your answer to the nearest dollar....

Suppose a firm makes purchases of Rs 10.95 million per year under terms of 2/10, net...

Suppose a firm makes purchases of Rs 10.95 million per year under terms of 2/10, net 30, and takes discounts. i. What is the average amount of accounts payable net of discounts? (Assume the Rs 10.95 million of purchases is net of discounts—that is, gross purchases are Rs 11,173,469.40, discounts are Rs 223,469.40, and net purchases are Rs 10.95 million.) ii. Is there a cost of the trade credit the firm uses? iii. If the firm did not take discounts...

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...

Recording Cash Discounts Schrand Corporation purchases materials from a supplier that offers credit terms of 1/15,...

Recording Cash Discounts Schrand Corporation purchases materials from a supplier that offers credit terms of 1/15, n/60. It purchased $15,000 of merchandise inventory from that supplier on January 20, 2016. Required a. Assume that Schrand Corporation paid the invoice of February 15, 2016. Prepare journal entries to record the purchase of this inventory and the cash payment to the supplier using the net-of-discount method. General Journal Description Debit Credit 1/20 Inventory 0 Accounts Payable 0 2/15 Accounts Payable 0 Interest...

1. Cash discount (LO1) Compute the cost of not taking the following cash discounts. a. 2/10,...

1. Cash discount (LO1) Compute the cost of not taking the following cash discounts. a. 2/10, net 40. b. 2/15, net 30. c. 2/10, net 45. d. 3/10, net 90. 2. Effective rate on discounted loan (LO2) Sol Pine borrows $5,000 for one year at 13 percent interest. What is the effective rate of interest if the loan is discounted? 3. Net credit position (LO1) McGriff Dog Food Company normally takes 27 days to pay for average daily credit purchases...

ABC Inc. expects to generate cash flows of $1 million per year in perpetuity. The firm...

ABC Inc. expects to generate cash flows of $1 million per year in perpetuity. The firm is 100% equity financed and its cost of equity is 10%. suppose the corporate tax rate is 40% * *What is the value of the unlevered firm? *Suppose the firm changes its capital structure to 50% debt at an interest rate of 5%. *According to M&M, what is the value of the levered firm? *What will be the new cost of equity? *What is...

Initial Cash flow investment Project A $5 million $2 million per year for four years Project...

Initial Cash flow investment Project A $5 million $2 million per year for four years Project B $3 million $1 million per year for five years Project C $2 million $1 million per year for four years Project D $3 million $1.5 million per year for three years An investor has a budget of $5 million. He can invest in the projects shown above. If the cost of capital is 6%, what investment or investments should he make? Select one:...

1.) Compute the cost of not taking the following cash discounts: a.) 2/10 net 40 b.)...

1.) Compute the cost of not taking the following cash discounts: a.) 2/10 net 40 b.) 2/15 net 30 c.) 2/10 net 45 d.) 3/10 net 90

Question