Mosaic Treasurer has just issued a new credit policy increasing the payment terms to its suppliers from net-30 days to net-60 days. Given average annual supplier purchases of $1,000,000,000 and cost of capital of 10%:

a.Calculate float savings resulting from this new credit policy.

b.Why will the Treasurer increase the payment terms?

Assuming the Treasurer reduces the payment terms for its customers from 60-days to 20-days:

c.Calculate float savings given annual average sales of $4,000,000,000.

d.What is the Treasurers motivation to reduce the receivable terms?