1. Homework - Trade Credit and Effective (Annual) Interest Rates You are a practice administrator and are running into a cash-flow problem for the current month. One of your supply vendor's invoices is coming closer to a payment due date and has the following trade credit terms: 2/10, net 30 The total amount due on the invoice is $1,400.85. Based on your organization's monthly budget and estimated cash flows, you are looking at paying this invoice on either day 12, 15, or 25. b) a) Calculate the effective interest rate for each of these possible payment days. Assuming the cash flow is positive enough to cover the cost of this invoice on any of these projected three dates, decide which date to pay the invoice and discuss why that date was chosen. 2. You are a hospital administrator and would like to renegotiate your current trade credit terms agreement (3/12, net 30) with your medical supply vendor for invoices that usually average $500/month. Your board members are requesting an updated trade credit agreement of 5/10, net 45 instead. Discuss possible reasons why your organization may be able to utilize leverage in this situation to hopefully receive a more optimal trade credit agreement. Next, using the estimated monthly supply invoice balance provided - compare both current and requested trade credit agreements with regards to their effective interest rates for a) paying within the discount period, and b) paying on day 20.

Homework - Trade Credit and Effective (Annual) Interest Rates 1. You are a practice administrator and are running into a cash-flow problem for the current month. One of your supply vendor's invoices is coming closer to a payment due date and has the following trade credit terms: 2/10, net 30 The total amount due on the invoice is $1,400.85. Based on your organization's monthly budget and estimated cash flows, you are looking at paying this invoice on either day 12,15 , or 25. a) Calculate the effective interest rate for each of these possible payment days. b) Assuming the cash flow is positive enough to cover the cost of this invoice on any of these projected three dates, decide which date to pay the invoice and discuss why that date was chosen. 2. You are a hospital administrator and would like to renegotiate your current trade credit terms agreement (3/12, net 30) with your medical supply vendor for invoices that usually average $500/ month. Your board members are requesting an updated trade credit agreement of 5/10, net 45 instead. Discuss possible reasons why your organization may be able to utilize leverage in this situation to hopefully receive a more optimal trade credit agreement. Next, using the estimated monthly supply invoice balance provided - compare both current and requested trade credit agreements with regards to their effective interest rates for a) paying within the discount period, and b) paying on day 20