4. Cost of trade credit Firms usually offer their customers some form of trade credit. This allowance comes with certain terms of credit, which will affect the actual cost of asset being sold for the buyer and the seller. Consider this case: Purple Turtle Group buys most of its raw materials from a single suppler. This supplier sells to Purple Turtle on terms of 1/20, net 60. (Note: Round all intermediate calculations to four decimal places, The cost per period of the trade credit extended to Purple Turtle is and your final answer to two decimal places.). assuming a 365-day year. (Note: Round all intermediate calculations to four Purple Turtle's trade credit has a nominal annual cost of decimal places, and your final answer to two decimal places.) If Purple Turtle Group's supplier shortens its discount period to five days, this will the cost of the trade credit. Why use short-term financing? Cash flows from operations may not be sufficient for a firm to keep up with growth-related financing needs, or the firm may not be able to always generate enough cash flow to maintain a surplus of cash. Firms prefer to borrow now to fulfil their capital requirements through means of short-term financing or long-term financing. Both methods have their advantages and disadvantages. The following statement identifies a possible characteristic of short-term financing Consider this case: Short-term loans usually have a lower cost than long-term loans. Identify whether the preceding statement is true or false. This statement is true and an advantage of short-term financing This statement is false and a disadvantage of short-term financing Firms use a variety of short-term financing sources to support working capital. Use the descriptions in the following table to identify the short-term financing source Short-Term Financing Source Description Continually recurring short-term liabilities commonly generated from unpaid wages or taxes, An obligation backed by collateral, often inventories or accounts receivable. 4. Cost of trade credit Firms usually offer their customers some form of trade credit. This allowance comes with certain terms of credit, which will affect the actual cost of asset being sold for the buyer and the seller. Consider this case: Purple Turtle Group buys most of its raw materials from a single suppler. This supplier sells to Purple Turtle on terms of 1/20, net 60. (Note: Round all intermediate calculations to four decimal places, The cost per period of the trade credit extended to Purple Turtle is and your final answer to two decimal places.). assuming a 365-day year. (Note: Round all intermediate calculations to four Purple Turtle's trade credit has a nominal annual cost of decimal places, and your final answer to two decimal places.) If Purple Turtle Group's supplier shortens its discount period to five days, this will the cost of the trade credit. Why use short-term financing? Cash flows from operations may not be sufficient for a firm to keep up with growth-related financing needs, or the firm may not be able to always generate enough cash flow to maintain a surplus of cash. Firms prefer to borrow now to fulfil their capital requirements through means of short-term financing or long-term financing. Both methods have their advantages and disadvantages. The following statement identifies a possible characteristic of short-term financing Consider this case: Short-term loans usually have a lower cost than long-term loans. Identify whether the preceding statement is true or false. This statement is true and an advantage of short-term financing This statement is false and a disadvantage of short-term financing Firms use a variety of short-term financing sources to support working capital. Use the descriptions in the following table to identify the short-term financing source Short-Term Financing Source Description Continually recurring short-term liabilities commonly generated from unpaid wages or taxes, An obligation backed by collateral, often inventories or accounts receivable
