Assignment:
Q1. a. If a firm buys under terms of 3/15, net 45, but actually pays on the 20th day and still takes the discount, what is the nominal cost of its nonfree trade credit?
b. Does it receive more or less credit than it would if it paid within 15 days?
Q2. Grunewald Industries sells on terms of 2/10, net 40. Gross sales last year were $4,562,500, and accounts receivable averaged $437,500. Half of Grunewald’s customers paid on the 10th day and took discounts. What are the nominal and effective costs of trade credit to Grunewald’s nondiscount customers? (Hint: Calculate sales/day based on a 365-day year; then get average receivables of discount customers; then find the DSO for the nondiscount customers.)
Provide complete and step by step solution for the question and show calculations and use formulas.