Assignment: The following information is to be used to answer questions 5 questions:
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Discount percentage
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3%
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Days of credit w/o being late
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40
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Discount period
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10
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Days nondiscount customers take to pay
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65
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Annual sales
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$900,000
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% of customers who take the discount
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30%
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% of customers who don't take the discount
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70%
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% cost per period
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3.09%
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Number of periods per year, assuming customers pay on time
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12.167
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Number of periods per year, assuming customers pay late
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6.636
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Acme Co. sells on terms of 3/10, net 40. Total sales for the year are $900,000. 30% of the customers pay on the 5th day and take discounts; the other 70% pay, on average, 65 days after their purchases, so they pay late. Assume a 365 day year for this problem, and also assume that both sales and accounts receivable are recorded net of discounts, regardless of whether or not customers take discounts.
Nominal cost of trade credit
Question 1. What should the nominal cost of trade credit be to those customers who do not take discounts, based on a 365 day year, assuming that they pay on time, even though they do not?
a. 35.12%
b. 37.63%
c. 39.44%
d. 41.82%
e. 43.35%
Nominal cost of trade credit
Question 2. What is the actual nominal cost of trade credit to those customers who do not take discounts, based on a 365 day year, recognizing that they do not pay on time?
a. 18.66%
b. 19.22%
c. 19.90%
d. 20.52%
e. 21.75%
Effective cost of trade credit
Question 3. What is the effective cost of trade credit to those customers who do not take discounts, based on a 365 day year, recognizing that they do not pay on time?
a. 22.40%
b. 22.88%
c. 23.46%
d. 24.03%
e. 24.91%
Determining accounts receivable
Question 4. Assuming that Acme’s sales are constant from year to year and also during each year, how much accounts receivable does the company have? Assume that both annual sales and accounts receivable are based on net sales, regardless of whether or not all customers take discounts.
a. $109,231
b. $114,871
c. $119,589
d. $123,257
e. $127,984
Days sales outstanding
Question 5. What is Acme’s DSO?
a. 42.5 days
b. 44.0 days
c. 45.5 days
d. 47.0 days
e. 48.5 days