Marston Manufacturing Company is a reliatively small player in its market. Its new Chief Financial Officer (CFo) Zachary Mcintosh, has suggested that its crede policy may be one possible source of the compeny's lower-than-desired sales. This is because Marston curmently sells al of its preduct on either a cash on delivery (COD) or a cash before delivery (CBD) basis, depending upon the buying volume of the customer, Zachary one possible strategy to increase Marston's sales is to offer trade credit to its most creditworthy customers. Offering trade credit will involve both risks and returns to Marston. Indicate which of the following statements regerding these risks and retures are true or false. when Merstan extends credt to its customers, it wil Trade credit is a non-spontaneous source of financing ncur an opportunity cost on its funds, and increase its for Marston's custorners. need for working capital This statement is: This statement is: O True O False O False O True Last week, Zachary met with several of the firm's larger, more creditworthy customers, including the Turner Newspaper Group. In the course of this meeting, he suggested terms of 3/10 net 20, but two things became quickly apparent Not everyene remembered how to calculabe the cost of trede credit, so a review of the equation should be conducted; and While everyone acknowledged that these terms are consistent with the industry's standands, they are concerned with the magnitude of the implicit costs associated with paying on various dates throughout the credit period. Therefore, yeu need to do two things: Idenaty the individual elements in the annual financing cost of trade credit equation; and Calculate the implicit costs of paying on several dates throughout Morton's cedit period. Begin with the identification of the variables in the annual financing cost of trade credit equation. Then, use the equation to compute the annual financing cost of the trade credt acsuming that the invoices are paid an the indicated days Remember, Zachary suggested terms of 3y10 net 20 Variable A Variable E t of Trade Credit (100-Variable c) (Variable - Variable D) Variable Identity of the Variable Payment Date Day 10 Day 11 Day 20 Day 30 (Two weeks late) Cost of Trade Credit Looking at the trend in the impliat costs of trade credit in the preceding table, what can you conclude about these costs? Read the following statement and determine if it is true or faise If a customer decides to fargo the cash discount, then he should make his payment on the day after its expiration i he warts to minimize the cost of his trade crecit This statement is: O True O False Marston Manufacturing Company is a reliatively small player in its market. Its new Chief Financial Officer (CFo) Zachary Mcintosh, has suggested that its crede policy may be one possible source of the compeny's lower-than-desired sales. This is because Marston curmently sells al of its preduct on either a cash on delivery (COD) or a cash before delivery (CBD) basis, depending upon the buying volume of the customer, Zachary one possible strategy to increase Marston's sales is to offer trade credit to its most creditworthy customers. Offering trade credit will involve both risks and returns to Marston. Indicate which of the following statements regerding these risks and retures are true or false. when Merstan extends credt to its customers, it wil Trade credit is a non-spontaneous source of financing ncur an opportunity cost on its funds, and increase its for Marston's custorners. need for working capital This statement is: This statement is: O True O False O False O True Last week, Zachary met with several of the firm's larger, more creditworthy customers, including the Turner Newspaper Group. In the course of this meeting, he suggested terms of 3/10 net 20, but two things became quickly apparent Not everyene remembered how to calculabe the cost of trede credit, so a review of the equation should be conducted; and While everyone acknowledged that these terms are consistent with the industry's standands, they are concerned with the magnitude of the implicit costs associated with paying on various dates throughout the credit period. Therefore, yeu need to do two things: Idenaty the individual elements in the annual financing cost of trade credit equation; and Calculate the implicit costs of paying on several dates throughout Morton's cedit period. Begin with the identification of the variables in the annual financing cost of trade credit equation. Then, use the equation to compute the annual financing cost of the trade credt acsuming that the invoices are paid an the indicated days Remember, Zachary suggested terms of 3y10 net 20 Variable A Variable E t of Trade Credit (100-Variable c) (Variable - Variable D) Variable Identity of the Variable Payment Date Day 10 Day 11 Day 20 Day 30 (Two weeks late) Cost of Trade Credit Looking at the trend in the impliat costs of trade credit in the preceding table, what can you conclude about these costs? Read the following statement and determine if it is true or faise If a customer decides to fargo the cash discount, then he should make his payment on the day after its expiration i he warts to minimize the cost of his trade crecit This statement is: O True O False
