ANGEL Company has purchased raw materials amounting to P800,000 from its major supplier on February 14, 2018. The credit terms given to ANGEL were: 3/20 net 60. ANGEL. operates 360 days a year. Three days after the purchase, the supplier is offering ANGEL new credit terms of 2/10 net 30 for the purchase transaction. The supplier is giving ANGEL the choice between the old credit terms of 3/20, net 60, and the new credit term of 2/10 net 30. 1. Compute the cost of the supplier's trade credit of the two terms. 2. Compute the effective cost of credit of the two credit terms. 3. Which credit terms should be chosen by ANGEL Company assuming cash discount will not be taken, or payment will be made on the last day of the credit term? Discuss your answer briefly. 4. Based on the answer in item number 3 and assuming that the prevailing interest rate of banks is 20\%, compute the net monetary benefits that ANGEL will enjoy when she takes the cash discount by paying within the discount period, and making use of bank borrowing as source of funds for the remaining 40 days.
ANGEL Company has purchased raw materials amounting to P800,000 from its major supplier on February 14, 2018. The credit terms given to ANGEL were: 3/20 net 60. ANGEL. operates 360 days a year.
Three days after the purchase, the supplier is offering ANGEL new credit terms of 2/10 net 30 for the purchase transaction. The supplier is giving ANGEL the choice between the old credit terms of 3/20, net 60, and the new credit term of 2/10 net 30.
1. Compute the cost of the supplier's trade credit of the two terms.
2. Compute the effective cost of credit of the two credit terms.
3. Which credit terms should be chosen by ANGEL Company assuming cash discount will not be taken, or payment will be made on the last day of the credit term? Discuss your answer briefly.
4. Based on the answer in item number 3 and assuming that the prevailing interest rate of banks is 20\%, compute the net monetary benefits that ANGEL will enjoy when she takes the cash discount by paying within the discount period, and making use of bank borrowing as source of funds for the remaining 40 days.
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