Calculate the nominal annual cost of trade credit under each of the following terms. Assume a 365-day year. Do not round intermediate calculations. Round your answers to two decimal places.
1/15, net 25.
2/10, net 55.
3/10, net 45.
2/10, net 45.
2/15, net 40.
Dorothy Koehl recently leased space in the Southside Mall and opened a new business, Koehl's Doll Shop. Business has been good, but Koehl frequently runs out of cash. This has necessitated late payment on certain orders, which is beginning to cause a problem with suppliers. Koehl plans to borrow from the bank to have cash ready as needed, but first she needs a forecast of how much she should borrow. Accordingly, she has asked you to prepare a cash budget for the critical period around Christmas, when needs will be especially high.
Sales are made on a cash basis only. Koehl's purchases must be paid for during the following month. Koehl pays herself a salary of $5,000 per month, and the rent is $3,000 per month. In addition, she must make a tax payment of $11,000 in December. The current cash on hand (on December 1) is $800, but Koehl has agreed to maintain an average bank balance of $4,000 - this is her target cash balance. (Disregard the amount in the cash register, which is insignificant because Koehl keeps only a small amount on hand in order to lessen the chances of robbery.)
The estimated sales and purchases for December, January, and February are shown below. Purchases during November amounted to $120,000.
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