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Cash Discounts Suppose a firm makes purchases of $3 million per year under terms of 3/10, net 30, and takes discounts. Assume 365 days in
Cash Discounts
Suppose a firm makes purchases of $3 million per year under terms of 3/10, net 30, and takes discounts. Assume 365 days in a year for your calculations. Do not round intermediate calculations.
- What is the average amount of accounts payable net of discounts? (Assume that the $3 million of purchases is net of discounts - that is, gross purchases are $3,092,784, discounts are $92,784, and net purchases are $3 million.) Round your answer to the nearest dollar. $
- Is there a cost of the trade credit the firm uses? I. The cost of the trade credit is $246,575. II. There is no cost of trade credit at this point. The firm is using "free" trade credit.
- If the firm did not take discounts but it did pay on the due date, what would be its average payables? Round your answer to the nearest dollar. $ If the firm did not take discounts but it did pay on the due date, what would be its nominal cost? Round your answer to two decimal places. % If the firm did not take discounts but it did pay on the due date, what would be its effective cost? Round your answer to two decimal places. %
- What would the firm's cost of not taking discounts be if it could stretch its payments to 36 days? Round your answers to two decimal places.
Nominal cost % Effective cost %
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