Langley Clinics, Inc. buys $400,000 in medical supplies a year (at gross prices) from its major supplier,Consolidated Services, which offers Langley terms of 2.5/10, net 45.Currently, Langley is paying thesupplier the full amount due on Day 45, but it is considering taking the discount, paying on Day 10, andreplacing the trade credit with a bank loan that has a 10 percent annual cost.

a. What is the amount of free trade credit that Langley obtains from Consolidated Services? (Assume360 days per year throughout this problem.)

Note:Format is $xx,xxx.xx Format is $xx,xxx.xx

b.What is the amount of costly trade credit?

Note:Format is $xx,xxx.xx Format is $xx,xxx.xx