22 Jul WHAT IS THE APPROXIMATE OR NOMINAL COST OF TRADE CREDIT AS AN ANNUAL RATE?
1. Suppose it takes a computer manufacturer 10 day Show more Homework questions SHOW ALL WORK FOR FULL CREDIT 1. Suppose it takes a computer manufacturer 10 days to build and sell computers. Also suppose it takes the firms customers 20 days on average to pay for the computers after they have purchased them on credit. Finally suppose the firm is able to delay paying for the computer parts it uses in the manufacturing process for 20 days. Given these conditions how long is the firms cash conversion cycle? 2. Suppose your firm buys $100 worth of supplies on credit with terms 3/10 n30. a. What does 3/10 n30 mean? b. If you pay the bill on the 9 th day after the purchase what is the cost of the trade credit you have used for the 9-day period? c. If you pay the bill on the 30 th day after the purchase what is the cost of the trade credit you have used for the 20-day period after the discount period ended? 3. If your firm buys $100 worth of supplies on credit with terms 3/10 n30 and pays the bill on the 30 th day after the purchase: a. What is the approximate or nominal cost of trade credit as an annual rate? b. What is the exact cost of trade credit as an annual rate? Answers to numerical problems: Question 1: 10 days Question 2b: 0.00% Question 2c: 3.09% Question 3a: 56.4% Question 3b: 74.3% Show less
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