fm22 7 - 22-9 Sales per day = $4,562,500 = $12,500. 365...

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Unformatted text preview: 22-9 Sales per day = $4,562,500 = $12,500. 365 Discount sales = 0.5($12,500) = $6,250. A/R attributable to discount customers = $6,250(10) = $62,500. A/R attributable to nondiscount customers: Total A/R Discount customers’ A/R Nondiscount customers’ A/R $437,500 62,500 $375,000 Days sales outstandin g A/R $375,000 = = = 60 days. nondiscount customers Sales per day $6,250 Alternatively, DSO = $437,500/$12,500 = 35 days. 35 = 0.5(10) + 0.5(DSONondiscount) DSONondiscount = 30/0.5 = 60 days. Thus, although nondiscount customers are supposed to pay within 40 days, they are actually paying, on average, in 60 days. Cost of trade credit to nondiscount customers equals the rate of return to the firm: Nominal rate = 2 365 = 0.0204(7.3) = 14.90%. × 98 60 - 10 Effective cost = (1 + 2/98)365/50 - 1 = 15.89%. 22-10 Accounts payable: ⎛ 3 ⎞ ⎛ 365 ⎞ Nominal cost = ⎜ ⎟ ⎜ ⎟ = (0.03093)(4.5625) = 14.11%. ⎝ 97 ⎠ ⎝ 80 ⎠ EAR cost = (1.03093)4.5625 - 1.0 = 14.91%. Answers and Solutions: 22 - 7 ...
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