Assignment
Part A.
ABC's largest supplier has just loosened up its trade credit policy. In the past, it has required that invoices be paid within 5 days ("net 5"), but ABC has been told that because they are such a good customer, they are not entitled to take 15 days to pay ("net 15"). ABC purchases $3,745,000 worth of goods from this supplier each year. How much additional cash will this change in credit terms generate for ABC?
Part B.
ABC purchases $348,000 worth of goods from its supplier each year on terms of 1/10, net 30 and currently does not take the discount. If ABC decided to raise enough capital to pay down accounts payable enough to take the discount, how much would they need to raise?
Part C.
Match the annual percentage rate to each of these trade credit terms.
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- A. B. C. D. E.
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1.5/20, NET 30
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- A. B. C. D. E.
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2/10, NET 20
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- A. B. C. D. E.
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1.5/5, NET 10
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- A. B. C. D. E.
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3/10, NET 20
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- A. B. C. D. E.
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3/15, NET 30
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A.
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55.58%
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B.
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74.49%
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C.
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75.26%
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D.
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112.89%
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E.
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111.17%
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Part D.
You have a loan that carries an annual interest rate of 10.7 percent. The loan requires quarterly payments. What is the Effective Annual Rate (EAR) of this rate? (Show your answer in decimal form to four places)