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Company X sells on a 4/18, net 69, basis. Customer Y buys goods with an invoice of $970. a. How much can Y deduct from
Company X sells on a 4/18, net 69, basis. Customer Y buys goods with an invoice of $970. a. How much can Y deduct from the bill if it pays on day 18? (Round your answer to 1 decimal place.) Discount b. How many extra days of credit can Y receive if it passes up the cash discount? (Round your answer to the nearest whole.) Extra days of credit C. What is the effective annual rate of interest if pays on the due date rather than day 18? (Round your answer to 2 decimal places.) Effective annual rate of interest Surf City sells its network browsing software for $13 per copy to computer software distributors and allows its customers 1 month to pay their bills. The cost of the software is $8 per copy. The industry is very new and unsettled, however, and the probability that a new customer granted credit will go bankrupt within the next month is 16%. The firm is considering switching to a cash-on-delivery credit policy to reduce its exposure to defaults on trade credit. The discount rate is 3% per month. a. Should the firm switch to a cash-on-delivery policy? If it does so, its sales will fall by 34%. (Click to select) b. How would your answer change if a customer that is granted credit pays its bills, and is expected to generate repeat orders with negligible likelihood of default for each of the next 6 months? Similarly, customers that pay cash also will generate on average 6 months of repeat sales. The most preferable strategy is Click to select)
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