1. Cost of Trade Credit
Calculate the nominal annual cost of nonfree trade credit under each of the following terms. Assume payment is made either on the due date or on the discount date. Assume 365 days in year for your calculations. Do not round intermediate calculations.
1/15, net 30. Round your answer to two decimal places.
%
2/10, net 50. Round your answer to two decimal places.
%
3/10, net 55. Round your answer to two decimal places.
%
2/10, net 55. Round your answer to two decimal places.
%
2/15, net 40. Round your answer to two decimal places.
%
2. Accounts Payable
A chain of appliance stores, APP Corporation, purchases inventory with a net price of $600,000 each day. The company purchases the inventory under the credit terms of 2/15, net 30. APP always takes the discount, but takes the full 15 days to pay its bills. What is the average accounts payable for APP? Round your answer to the nearest dollar.
$
3. Cost of Trade Credit
A large retailer obtains merchandise under the credit terms of 1/10, net 45, but routinely takes 65 days to pay its bills. (Because the retailer is an important customer, suppliers allow the firm to stretch its credit terms.) What is the retailer's effective cost of trade credit? Assume 365 days in year for your calculations. Do not round intermediate calculations. Round your answer to two decimal places.
%
4. Cost of Trade Credit
What is the nominal and effective cost of trade credit under the credit terms of 3/20, net 40? Assume 365 days in a year for your calculations. Round your answers to two decimal places. Do not round intermediate calculations.
Nominal cost of trade credit
%
Effective cost of trade credit
%