Question

1)Grunewald Industries sells on terms of 3/10, net 50. Gross sales last year were $4,781,500 and accounts receivable averaged $589,500. Half of Grunewald's customers paid on the 10th day and took discounts. What are the nominal and effective costs of trade credit to Grunewald's nondiscount customers? (Hint: Calculate daily sales based on a 365-day year, calculate the average receivables for discount customers, and then find the DSO for the nondiscount customers.) Do not round intermediate calculations. Round your answers to two decimal places. Nominal cost of trade credit: %

Effective cost of trade credit: %

2) The D.J. Masson Corporation needs to raise $600,000 for 1 year to supply working capital to a new store. Masson buys from its suppliers on terms of 1/10, net 75, and it currently pays on the 10th day and takes discounts. However, it could forgo the discounts, pay on the 75th day, and thereby obtain the needed $600,000 in the form of costly trade credit. What is the effective annual interest rate of this trade credit? Assume a 365-day year. Do not round intermediate calculations. Round your answer to two decimal places.

%

Answer 1

IF ANY QUERY, FEEL FREE TO ASK THEM AND GET RESOLVED Solution 1 Nominal Cost of trade credit х discount % 1-discount % *I 365 net days х 3% 1-3% 365 50-10 3% х 365 * 97.00% 40 28.22% Effective Cost of trade credit 1 + 365 -1 discount % 1-discount % 11 net days 1 + -1 3% 1-3% 365 50-10 | | 1 + 3% < 365 -1 97.00% 40 32.04% 2 Effective Cost of trade credit 1 + 365 -1 discount % 1-discount % net days 1 + -1 1% 1-1% 365 75-10 1+ -1 1% 99.00% 11 365 65 5.81%