fm22 11 - 22-15 a. Average accounts payable = $3,650,000 ×...

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Unformatted text preview: 22-15 a. Average accounts payable = $3,650,000 × 10 days = $10,000 × 10 = $100,000. 365 days b. There is no cost of trade credit at this point. The firm is using “free” trade credit. c. Average payables (net of discount) = $3,650,000 × 30 = $10,000 × 30 = $300,000. 365 Nominal cost = (2/98)(365/20) = 37.24%, or $74,489.80/($300,000 - $100,000) = 37.24%. Effective cost = (1 + 2/98)365/20 - 1 = 0.4459 = 44.59%. d. Nominal rate = 2 365 × = 24.83%. 98 40 - 10 Effective cost = (1 + 2/98)365/30 - 1 = 0.2786 = 27.86%. 22-16 Trade Credit Terms: 2/10, net 30. But the firm plans delaying payments 35 additional days, which is the equivalent of 2/10, net 65. 365 Discount percent × Discount Days credit Discount 100 − percent is outstanding period 2 365 2 365 = × = × = 0.0204 (6.6364 ) = 13.54% . 100 - 2 65 - 10 98 55 Nominal cost = Effective cost = (1 + 2/98)365/55 - 1 = 14.35%. Answers and Solutions: 22 - 11 ...
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This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.

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