Mcdowell industries sells on terms 210 net 25 total sales, Ask an Expert

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McDowell Industries sells on terms 2/10, net 25. Total Sales for the year are $ 1,200,000: 40% of the customers pay on the 10th day and take discounts, while 40 % pay on the 25th day and the other 20% pay, on average, 40 days after their purchases. The bad debts percentage is estimated to be 5%. Use a 365 day year. Calculate both the APR and EAR of d and e.

a. What is the days sales outstanding?
b. What is the average amount of receivables?
c. What is the Dollar amount of the discounts?
d. What is the cost of trade credit to customers who do not take the discount and pay on day 25?
e. What is the cost of trade credit to customers who stretch the discount and pay on day 40?
f. What is the dollar cost of bad debts?

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