Solution-What is the amount of costly trade credit

What is the amount of costly trade credit

Reference no: EM133031839

Question - Langley Clinics, Inc. buys $400,000 in medical supplies a year (at gross prices) from its major supplier, Consolidated Services, which offers Langley terms of 2.5/10, net 45. Currently, Langley is paying the supplier the full amount due on Day 45, but it is considering taking the discount, paying on Day 10, and replacing the trade credit with a bank loan that has a 10 percent annual cost.

Required -

a. What is the amount of free trade credit that Langley obtains from Consolidated Services?

b. What is the amount of costly trade credit?

c. What is the approximate annual PERCENT cost of the costly trade credit?

d. Assuming Langley can obtain a bank loan for 15%, should the firm replace its costly trade credit with the bank loan?

e. Should Langley replace ALL of its trade credit with the bank loan?

Reference no: EM133031839

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What is the amount of costly trade credit

Reference no: EM133031839

Reference no: EM133031839

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