Nominal and effective costs of trade credit

Assignment Help Financial Management

Reference no: EM13808697

Cost of Trade Credit

Grunewald Industries sells on terms of 3/10, net 50. Gross sales last year were $4,972,000, and accounts receivable averaged $488,000. Half of Grunewald's customers paid on the 10th day and took discounts. What are the nominal and effective costs of trade credit to Grunewald's nondiscount customers?

(Hint: Calculate sales/day based on a 365-day year; then get average receivables of discount customers; then find the DSO for the nondiscount customers.) Do not round intermediate calculations. Round your answers to two decimal places.

Nominal cost %

Effective cost %

Reference no: EM13808697

Questions Cloud

Explain how the attack occurred : Explain how you would as an employee of a company practice those principles. Explain how the attack occurred and what was needed to remedy the situation

Calculate the nominal annual cost of non free trade credit : Calculate the nominal annual cost of non free trade credit under each of the following terms. Assume payment is made either on the due date or on the discount date. Assume 365 days in year for your calculations.

The expected rate of return on an average stock : Stock R has a beta of 1.4, Stock S has a beta of 0.75, the expected rate of return on an average stock is 13%, and the risk-free rate is 5%. By how much does the required return on the riskier stock exceed the required return on the riskier stock exc..

What is the nominal cost of its nonfree trade credit : If a firm buys under terms of 1/15, net 40, but actually pays on the 20th day and still takes the discount, what is the nominal cost of its nonfree trade credit? Assume 365 days in year for your calculations.

Nominal and effective costs of trade credit : Grunewald Industries sells on terms of 3/10, net 50. Gross sales last year were $4,972,000, and accounts receivable averaged $488,000. Half of Grunewald's customers paid on the 10th day and took discounts. What are the nominal and effective costs of ..

About the cash conversion cycle : Negus Enterprises has an inventory conversion period of 80 days, an average collection period of 47 days, and a payables deferral period of 40 days. Assume that cost of goods sold is 80% of sales. What is the length of the firm's cash conversion cycl..

Breakeven point for new process : What is the breakeven point for this new process? Compare this process to the process proposed in the previous problem. For what volume of demand should Patricia choose this process?

Is there a difference between price and value : What is the right price for a stock? Is it book value, liquidation value or simply its market price at a given moment in time? Would you value a privately-owned company where there is no market value differently than a publicly owned company where th..

Construct two financing plans-one conservative : Christensen & Assoc. is developing an asset financing plan. Christensen has $1,000,000 in current assets, of which 15% are permanent, and $700,000 in fixed assets. The current long-term rate is 9%, and the current short-term rate is 6.5%. Christensen..

User Account

All Pages