PS #4 Current Asset Management FM: Chapter 16# 10, 11, 14, 15 & 17 (16-15) Suppose a firm makes purchases of$3.65 million per year mlder terms of2/10, net 30, and takes Cash Discounts discounts. a. What is the average amount of accounts payable net of discounts? (Assume the $3.65 million of purchases is net of discounts - that is, gross purchases are $3,724,489.80, discounts are $74,489.80, and net purchases are 3.65 million..) b. Is there a cost of the trade credit the firm uses? c. If the firm did not take discounts but did pay on the due date, what would be its average payables and the cost of this nonfree trade credit? d. What would be the firm's cost of not taking discounts if it cou.ld stretch its payments to 40 days? (16_17) The Raattama Corporation had sales of $3.5 million last year, and it eairned a 5% Bank Financing return (after taxes) on sales. Recently, the company has fal1en behind in its accounts payable. Although its terms of purchase are net 30 days, its accounts payable represents 60 days' purchases. The company's treasurer .is seeking to increase bank borrowing in order to become current in meeting its trade obligations (that .is, to have 30 days' payables outstanding). The company's balanc,e sheet is as follows (in thousands of do!lars): Cash $ 100 Accounts payable $ 600 Accounts rnoeivable 300 Bank loans 700 Inventory .L:1QQ Accruals 200 current assets $1,800 Current liabilities $1,500 Land and buildings 600 Mortgage on real estate 700 Equipment 600 Common stock, $0.10 par 300 Retained earnings 500 Total assets $3,000 Total liabilities and equity $3,000 a. How much bank financing is needed to eliminate the past-due accounts payable? b. Assume that the bank will lend the :furn the amount calculated in Part a. The teTHlS of the loan offered ar,e 8%, simp]e interest, and the bank uses a 360-day year for the interest calculation. What is the interest charge for I month? (Assume ther,e are 30 days in a month.) c. Now ignore Part b and assume that tb.e bank will lend the firm the amount calculated in Part a. The terms of the 1oan are 7.5%, add-on interest, to be repaid in 12 monthly installments. (1) What is the total loan amount? (2) What ar,e the monthly .installments? (3) What is the APR of the loan? (4) What is the effective rate of the loan? d. Would you, as a bank 1oan officer, make this loan? Why or why not