Question
Grunewald Industries sells on terms of 2/10, net 40. Gross sales last year were $4,562,500 and accounts receivable averaged $437,500. Half of Grunewalds customers paid
Grunewald Industries sells on terms of 2/10, net 40. Gross sales last year were $4,562,500 and accounts receivable averaged $437,500. Half of Grunewalds customers paid on the 10th day and took discounts. What are the nominal and effective costs of trade credit to Grunewalds nondiscount customers? (Hint: Calculate sales/day based on a 365-day year, then calculate average receivables of discount customers, and then find the DSO for the nondiscount customers.) Please show the working. The answers in the book are Nominal cost = 14.90% and Effective Cost = 15.89%
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