Question
a) Snow Ltd purchases supplies on terms of 2/10, net 40. If Snow Ltd chooses to take the discount offered, it must obtain a bank
a) Snow Ltd purchases supplies on terms of 2/10, net 40. If Snow Ltd chooses to take the discount offered, it must obtain a bank loan to afford it. ANT bank has quoted an APR of 14% on borrowed funds. (4 marks)
i) Once Snow Ltd passes the discount period, how much cost will it incur in an annual term?
ii) Calculate the EAR for ANT bank.
iii) What should Snow Ltd do? do?
b) Bercraft Ltd has an average accounts payable balance of $280,000. Its average annual cost of goods sold is $4,780,000. It receives terms of 1/20, net 40 from its suppliers. Is Bercraft managing its accounts payables well? Why or why not? (3 marks)
c) Westerly industries has the following financial information. Calculate its cash conversion cycle and interpret what the value means. (3 marks)
Sales | $110,000 |
---|---|
Cost of goods sold | $90,000 |
Accounts receivable | $32,000 |
Inventory | $20,000 |
Accounts payable | $50,000 |
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