You have just purchased new goods worth 10,000 EUR from your supplier. Your supplier offers you to pay within 35 days. If you pay within the first 5 days, you get a discount of 1%. You know that he might accept a further delay, because he has a quite bad receivables management, but if he notices, which you estimate has a probability of roughly 50%, you might get an additional fee of 1000 EUR. You need your next delivery in 60 days and you know he will not deliver the new goods unless you pay the outstanding invoice. When would you pay? Why? What is the effective interest rate?

Trade credit can be defined as the deal with the suppliers to receive goods without making an…

Answered: You have just purchased new goods worth…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter21: Supply Chains And Working Capital Management

Section: Chapter Questions

Problem 10MC

See similar textbooks

Related questions

Question

You have just purchased new goods worth 10,000 EUR from your supplier. Your supplier offers you to pay within 35 days. If you pay within the first 5 days, you get a discount of 1%. You know that he might accept a further delay, because he has a quite bad receivables management, but if he notices, which you estimate has a probability of roughly 50%, you might get an additional fee of 1000 EUR. You need your next delivery in 60 days and you know he will not deliver the new goods unless you pay the outstanding invoice. When would you pay? Why? What is the effective interest rate?

Expert Solution

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions