Question

Biscuit Boyz buys $9 million per year of materials (net of discounts) on terms of 2/20, net 60; and it currently pays on the 20th day and takes discounts. Biscuit plans to expand, which will require additional financing. If Biscuit decides to forgo discounts, how much additional credit could it obtain, and what would be the nominal and effective cost of that credit?

Answer 1

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C w ENG 06:02 31-07-2020 99+ 29 Х 1E533 . HZ IA IB IC ID JE IF IG IH II כן IK 511 BISCUIT BOYS 512 513 514 515 516 a 517 AS COMPANY PAYS IN 5 DAYS AND GETS DISCOUNT, IF IT FORGOES DISCOUNT, IT CAN OBTAIN ADDITIONAL CREDIT SALES /365 DAYS X (TOTAL CREDIT DAYS - DISCOUNT DAYS) 9000000/365 X (60-20) = 986301.37 518 519 520 b 521 522 NOMINAL COST OF CREDIT ((discount / (1-discount))*(365 / (final date - early date)) ((0.02/(1-0.02))*(365/(60-20)) = 18.62% 523 524 C 525 EFFECTIVE COST OF CREDIT ((1 + (discount / (1-discount)))^(365 / (final date - early date)) )- 1 (1 + (0.02/(1-0.02))^(365/(60-20))) - 1= (( 1 + 0.0204082)19.125)- 1 = 0.202436244 >>> 20.24% 526 527 528 529 530 531 532 533 534 45 days cycle MCEwan ROE, BV MV ratio VARIANCE BEP, OL FL ratios DETROIT float | B-S profit loss SALES BUDGET dupont INTENGIBLE DIF ... +