Chapter 5, Problem 29P

### Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250

Chapter
Section

### Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250
Textbook Problem

# BUILDING CREDIT COST INTO PRICES Your firm sells for cash only, but it is thinking of offering credit, allowing customers 90 days to pay. Customers understand the time value of money, so they would all wait and pay on the 90th day. To carry these receivables, you would have to borrow funds from your bank at a nominal 9%, daily compounding based on a 360-day year. You want to increase your base prices by exactly enough to offset your bank interest cost. To the closest whole percentage point, by how much should you raise your product prices?

Summary Introduction

To calculate: Increased base price of the product and the interest owned.

Introduction:

Credit Cost:

It is the amount in addition to the amount borrowed, which a borrower has to pay to take credit. It has various charges like interest and other fees. As creditor lends his money he asked for some charges which are mandate.

Explanation

Formula to calculate increase in product price,

Costāperāday=INOMM

Substitute 9% for INOM and 360 for M.

Costāperāday=0.09360=\$0.00025

Compute amount received after 90 days.

Formula to calculate ending amount is,

EndingāAmount=(1+Costāperāday)N

Substitute 0.00025 for cost per day and 90 for n

### Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

#### The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

#### What are cash equivalents?

Cornerstones of Financial Accounting

#### What is inflation and what causes it?

Essentials of Economics (MindTap Course List)

#### Should firms require higher rates of return on foreign projects than on identical projects located at home? Exp...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

#### Explain the separate entity concept.

College Accounting (Book Only): A Career Approach