The cost of giving up the early payment discount from each supplier. Introduction: Credit term refers to customer’s ability to acquire goods before making payment, depends on the trust that payment will be paid in future.

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Answer 1

Question

Chapter 16, Problem 16.6P

a)

Summary Introduction

To determine: The cost of giving up the early payment discount from each supplier.

Introduction:

Credit term refers to customer’s ability to acquire goods before making payment, depends on the trust that payment will be paid in future.

b)

Summary Introduction

To discuss: The current availability from the commercial bank when the firm requires short-term financing.

Introduction:

An external type of financing that have a shorter time span for repaying the loan back is termed as short-term financing. This type of financing has less interest rate as compared to the long-term financing. Every company relies on short-term financing from external sources.

c)

Summary Introduction

To discuss: The impact on taking the discount or giving up the early payment discount when the firm stretches by 30 days its accounts payable.

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Students have asked these similar questions

Cost of trade credit Firms usually offer their customers some form of trade credit. This allowance comes with certain terms of credit. These terms will affect the cost of the asset for both the buyer and the seller. Consider the following case: Blue Elk Manufacturing buys most of its raw materials from a single supplier. This supplier sells to Blue Elk on terms of 2/15, net 45. The cost per period of the trade credit extended to Blue Elk, rounded to two decimal places, is___________% Blue Elk’s trade credit has a nominal annual cost—expressed as an annual percentage rate (APR)—of_________%, assuming a 365-day year. (Note: Round all intermediate calculations to four decimal places, and your final answer to two decimal places.) If Blue Elk’s supplier shortens the discount period by five days, this will _____________(Increase or decrease pick one) the cost of the trade credit.

Roton Inc. purchases merchandise on terms of 2/15, net 40, and its gross purchases (i.e., purchases before taking off the discount) are $525,000 per year. What is the maximum dollar amount of costly trade credit the firm could get, assuming it abides by the supplier's credit terms? (Assume a 365-day year.) Do not round intermediate calculations. Select one:

P15–6 Early payment discount decisions Prairie Manufacturing has four possible suppliers, all of which offer different credit terms. Except for the differences in credit terms, their products and services are virtually identical. The credit terms offered by these suppliers are shown in the following table. (Note: Assume a 365-day year.) Supplier Credit terms J 1/5 net 30 EOM K 2/20 net 80 EOM L 1/15 net 60 EOM M 3/10 net 90 EOM Calculate the approximate cost of giving up the early payment discount from each supplier. If the firm needs short-term funds, which are currently available from its commercial bank at 9%, and if each of the suppliers is viewed separately, which, if any, of the suppliers’ early payment discounts should the firm give up? Explain why. Now assume that the firm could stretch by 30 days its accounts payable (net period only) from supplier M. What impact, if any, would that have on your answer in part brelative to this supplier?

Answer 2

Question

Chapter 16, Problem 16.6P

a)

Summary Introduction

To determine: The cost of giving up the early payment discount from each supplier.

Introduction:

Credit term refers to customer’s ability to acquire goods before making payment, depends on the trust that payment will be paid in future.

b)

Summary Introduction

To discuss: The current availability from the commercial bank when the firm requires short-term financing.

Introduction:

An external type of financing that have a shorter time span for repaying the loan back is termed as short-term financing. This type of financing has less interest rate as compared to the long-term financing. Every company relies on short-term financing from external sources.

c)

Summary Introduction

To discuss: The impact on taking the discount or giving up the early payment discount when the firm stretches by 30 days its accounts payable.

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Answer 3

Question

Chapter 16, Problem 16.6P

a)

Summary Introduction

To determine: The cost of giving up the early payment discount from each supplier.

Introduction:

Credit term refers to customer’s ability to acquire goods before making payment, depends on the trust that payment will be paid in future.

b)

Summary Introduction

To discuss: The current availability from the commercial bank when the firm requires short-term financing.

Introduction:

An external type of financing that have a shorter time span for repaying the loan back is termed as short-term financing. This type of financing has less interest rate as compared to the long-term financing. Every company relies on short-term financing from external sources.

c)

Summary Introduction

To discuss: The impact on taking the discount or giving up the early payment discount when the firm stretches by 30 days its accounts payable.

Expert Solution & Answer

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Answer 4

Question

Chapter 16, Problem 16.6P

a)

Summary Introduction

To determine: The cost of giving up the early payment discount from each supplier.

Introduction:

Credit term refers to customer’s ability to acquire goods before making payment, depends on the trust that payment will be paid in future.

b)

Summary Introduction

To discuss: The current availability from the commercial bank when the firm requires short-term financing.

Introduction:

An external type of financing that have a shorter time span for repaying the loan back is termed as short-term financing. This type of financing has less interest rate as compared to the long-term financing. Every company relies on short-term financing from external sources.

c)

Summary Introduction

To discuss: The impact on taking the discount or giving up the early payment discount when the firm stretches by 30 days its accounts payable.

Expert Solution & Answer

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Answer 5

Chapter 16, Problem 16.6P

a)

Summary Introduction

To determine: The cost of giving up the early payment discount from each supplier.

Introduction:

Credit term refers to customer’s ability to acquire goods before making payment, depends on the trust that payment will be paid in future.

b)

Summary Introduction

To discuss: The current availability from the commercial bank when the firm requires short-term financing.

Introduction:

An external type of financing that have a shorter time span for repaying the loan back is termed as short-term financing. This type of financing has less interest rate as compared to the long-term financing. Every company relies on short-term financing from external sources.

c)

Summary Introduction

To discuss: The impact on taking the discount or giving up the early payment discount when the firm stretches by 30 days its accounts payable.

Answer 6

Chapter 16, Problem 16.6P

a)

Summary Introduction

To determine: The cost of giving up the early payment discount from each supplier.

Introduction:

Credit term refers to customer’s ability to acquire goods before making payment, depends on the trust that payment will be paid in future.

Answer 7

Chapter 16, Problem 16.6P

a)

Summary Introduction

To determine: The cost of giving up the early payment discount from each supplier.

Introduction:

Credit term refers to customer’s ability to acquire goods before making payment, depends on the trust that payment will be paid in future.

Answer 8

b)

Summary Introduction

To discuss: The current availability from the commercial bank when the firm requires short-term financing.

Introduction:

An external type of financing that have a shorter time span for repaying the loan back is termed as short-term financing. This type of financing has less interest rate as compared to the long-term financing. Every company relies on short-term financing from external sources.

Answer 9

b)

Summary Introduction

To discuss: The current availability from the commercial bank when the firm requires short-term financing.

Introduction:

An external type of financing that have a shorter time span for repaying the loan back is termed as short-term financing. This type of financing has less interest rate as compared to the long-term financing. Every company relies on short-term financing from external sources.

Answer 10

c)

Summary Introduction

To discuss: The impact on taking the discount or giving up the early payment discount when the firm stretches by 30 days its accounts payable.

Answer 11

c)

Summary Introduction

To discuss: The impact on taking the discount or giving up the early payment discount when the firm stretches by 30 days its accounts payable.

Answer 12

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Answer 13

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Answer 14

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Answer 15

Ch. 16.1 - Prob. 1FOE Ch. 16.1 - What are the two major sources of spontaneous...Ch. 16.1 - Prob. 16.2RQ Ch. 16.1 - Prob. 16.3RQ Ch. 16.2 - Prob. 1FOP Ch. 16.2 - How is the prime rate of interest relevant to the...Ch. 16.2 - How does the effective annual rate differ between...Ch. 16.2 - What are the basic terms and characteristics of a...Ch. 16.2 - What is a line of credit? Describe each of the...Ch. 16.2 - What is a revolving credit agreement? How does...

The cost of giving up the early payment discount from each supplier. Introduction: Credit term refers to customer’s ability to acquire goods before making payment, depends on the trust that payment will be paid in future.

Solution Summary: The author explains the approximate cost of giving up cash discount for the Person J (supplier) is 14.6 percent.

Concept explainers

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To determine: The cost of giving up the early payment discount from each supplier.

Introduction:

Credit term refers to customer’s ability to acquire goods before making payment, depends on the trust that payment will be paid in future.

To discuss: The impact on taking the discount or giving up the early payment discount when the firm stretches by 30 days its accounts payable.

Want to see the full answer?

Chapter 16 Solutions

The cost of giving up the early payment discount from each supplier. Introduction: Credit term refers to customer’s ability to acquire goods before making payment, depends on the trust that payment will be paid in future.

Solution Summary: The author explains the approximate cost of giving up cash discount for the Person J (supplier) is 14.6 percent.

Concept explainers

Videos

To determine: The cost of giving up the early payment discount from each supplier. Introduction: Credit term refers to customer’s ability to acquire goods before making payment, depends on the trust that payment will be paid in future.

To discuss: The impact on taking the discount or giving up the early payment discount when the firm stretches by 30 days its accounts payable.

Want to see the full answer?

Chapter 16 Solutions

To determine: The cost of giving up the early payment discount from each supplier.

Introduction:

Credit term refers to customer’s ability to acquire goods before making payment, depends on the trust that payment will be paid in future.