Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
11th Edition
ISBN: 9780077861759
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 28, Problem 5QP
Terms of Sale A firm offers terms of 1/10, net 30. What effective annual interest rate does the firm earn when a customer does not take the discount? Without doing any calculations, explain what will happen to this effective rate if:
a. The discount is changed to 2 percent.
b. The credit period is increased to 60 days.
c. The discount period is increased to 15 days.
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a. A firm currently offers terms of sale of 3/25, net 50. Calculate the effective annual rate.
a-1. Calculate the effective annual rate if the terms are changed to 4/25, net 50.
a-2. What effect does an increase in the discount rate have on the implicit interest rate charged to customers that pass up the discount?
b-1. Calculate the effective annual rate if the terms are changed to 3/35, net 50.
b-2. What effect does a decrease in the extra days of credit have on the implicit interest rate charged to customers that pass up the discount?
c-1. Calculate the effective annual rate if the terms are changed to 3/25, net 40.
c-2. Is there any difference between the implicit interest rate for terms of 3/35, net 50 and 3/25, net 40?
A firm is offered trade credit terms of 3/15, net 30 days. The firm does not take the discount, and it pays after 50 days.
Questions:
- What is the annual nominal rate of not taking this discount?
- How much is the rate per period?
A firm is offered trade credit terms of 3/15, net 30
days. The firm does not take the discount, and it
pays after 50 days. (Assume a 365-day year)
a. What is the effective annual cost of not taking
this discount?
b. How many days are there per period?
c. How much is the rate per period?
d. The number of compounding period is_?
e. What is the annual nominal rate of not taking
this discount?
Chapter 28 Solutions
Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 28 - Prob. 1CQCh. 28 - Trade Credit forms In what form is trade credit...Ch. 28 - Prob. 3CQCh. 28 - Five Cs or Credit What arc the five Cs of credit?...Ch. 28 - Credit Period Length What are some of the factors...Ch. 28 - Credit Period Length In each of the following...Ch. 28 - Inventory Types What are the different inventory...Ch. 28 - Just-in-Time Inventory If a company moves to a JIT...Ch. 28 - Inventory Costs If a companys inventory carrying...Ch. 28 - Inventory Period At least part of Dells corporate...
Ch. 28 - Prob. 1QPCh. 28 - Size of Accounts Receivable The Paden Corporation...Ch. 28 - ACP and Accounts Receivable Kyoto Joe, Inc., sells...Ch. 28 - Size of Accounts Receivable Tidwell, Inc., has...Ch. 28 - Terms of Sale A firm offers terms of 1/10, net 30....Ch. 28 - ACP and Receivables Turnover Chen, Inc., bas an...Ch. 28 - Size of Accounts Receivable Essence of Skunk...Ch. 28 - Size of Accounts Receivable The Arizona Bay...Ch. 28 - Evaluating Credit Policy Air Spares is a...Ch. 28 - Credit Policy Evaluation Leeloo, Inc., is...Ch. 28 - EOQ Fhloston Manufacturing uses 1,860 switch...Ch. 28 - EOQ The Trektronics store begins each week with...Ch. 28 - EOQ Derivation Prove that when carrying costs and...Ch. 28 - Credit Policy Evaluation The Harrington...Ch. 28 - Credit Policy Evaluation Happy Times currently has...Ch. 28 - Credit Policy The Silver Spokes Bicycle Shop has...Ch. 28 - Break-Even Quantity In Problem 14, what is the...Ch. 28 - Prob. 18QPCh. 28 - Prob. 19QPCh. 28 - Safety Stocks and Order Points Sach, Inc., expects...Ch. 28 - Evaluating Credit Policy Solar Engines...Ch. 28 - Evaluating Credit Policy In the previous problem,...Ch. 28 - Prob. 1MC
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