Accounts payable and cash management question:

(Accounts-payable

policy and cash

management)

Bradford Construction Supply Company is suffering from a prolonged decline in new construction in its sales area. In an attempt to improve its cash position, the firm is considering changes in its accounts-payable policy. After careful study, it has determined that the only alternative available is to slow disbursements. Purchases for the coming year are expected to be

$3838

million. Sales will be

$7070

million, which represents about a 20 percent drop from the current year. Currently, Bradford discounts approximately

2525

percent of its payments at

55

percent,

1515

days, net

3030,

and the balance of accounts is paid in

3030

days. If Bradford adopts a policy of payment in

4545

days or

6060

days, how much can the firm gain if the annual opportunity cost of investment is

1010

percent? What will be the result if this action causes Bradford Construction suppliers to increase their prices to the company by

0.50.5

percent to compensate for the

6060-day

extended term of payment? In your calculations, use a 365-day year and ignore any compounding effects related to the expected returns.

Under current credit terms of

55

percent,

1515

days, net

3030,

what is the amount of payment made in

1515

days after purchase in order to obtain the discount?