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part b relative to this supplier? PROBLEMS
LG1 15–1 Payment dates Determine when a firm must pay for purchases made and
invoices dated on November 25 under each of the following credit terms.
a. net 30 date of invoice
c. net 45 date of invoice
b. net 30 EOM
d. net 60 EOM LG1 15–2 Cost of giving up cash discounts Determine the cost of giving up cash discounts under each of the following terms of sale.
a. 2/10 net 30
e. 1/10 net 60
b. 1/10 net 30
f. 3/10 net 30
c. 2/10 net 45
g. 4/10 net 180
d. 3/10 net 45 LG1 15–3 Credit terms Purchases made on credit are due in full by the end of the billing
period. Many firms extend a discount for payment made in the first part of the
billing period. The original invoice contains a type of “short-hand” notation that
explains the credit terms that apply.
a. Write the short-hand expression of credit terms for each of the following. Cash discount Cash
discount period Credit period Beginning of
credit period 1% 15 days 45 days date of invoice 2 10 30 end of month 2 7 28 date of invoice 1 10 60 end of month 660 PART 5 Short-Term Financial Decisions b. For each of the sets of credit terms in part a, calculate the number of days
until full payment is due for invoices dated March 12.
c. For each of the sets of credit terms, calculate the cost of giving up the cash
d. If the firm’s cost of short-term financing is 8%, what would you recommend
in regard to taking the discount or giving it up in each case?
LG1 LG1 15–4 Cash discount versus loan Erica Stone works in an accounts payable department. She has attempted to convince her boss to take the discount on the 3/10
net 45 credit terms most suppliers offer, but her boss argues that giving up the
3% discount is less costly than a short-term loan at 14%. Prove to whoever is
wrong that the other is correct. LG2 15–5 Cash discount decisions Prairie Manufacturing has four possible suppliers, all
of whom offer different credit terms. Except for the differences in credit terms,
their products and services are virtually identical...
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