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Short Term Financing Solutions 2

# Short Term Financing Solutions 2 - Given this information...

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Old Exam Questions - Short-term Financing - Solutions Page 2 of 2 Pages Approximate percentage cost = (2%/98%)*(360/35) = 21% Accounts payable = \$157,500 / .021 = \$750,000 4. A firm is offered trade credit terms of 3/10, net 40. The firm does not take the discount, and it pays after 20 days (on day 30). Using a 360-day year, what is the annual cost (on a nominal basis, not effective) of not taking this discount? * A. 55.67% B. 57.67% C. 61.67% D. 53.67% E. 59.67% Nominal Cost = (3 / 97) (360 / 20) = 55.67% 5. Assume that your firm buys on terms of 2/15, net 30, but that it does not take the discount and pays 35 days after the invoice date. You may also assume that net purchases amount to \$720,000 per year.
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Unformatted text preview: Given this information, and assuming a 365-day year, determine the nominal annual cost of trade credit. A. 17.21% B. 23.63% C. 26.18% * D. 37.24% E. 50.67% Cost = (2 / 98) * (365 / (35 - 15)) = 37.24% 6. A firm is offered trade credit terms of 3/10, net 30. The firm does not take the discount, and even takes an additional 20 days paying on day 50 instead of on day 30. Using a 360-day year, what is the annual cost (on a nominal basis, not effective) of not taking this discount? * A. 27.84% B. 24.49% C. 20.18% D. 22.27% E. 30.63% The firm has the use of the money for 50 - 10 = 40 days, but pays an extra 3%: Nominal Cost of Trade Credit = (3% / 97%) * (360 / 40) = 27.84%...
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