Question

Sybex Corp. sells its goods with terms of 4/10 EOM, net 30.
**What is the implicit cost of the trade credit?**
*Round to 4 decimal places and represent percentage as a
decimal.*

Answer #1

**Solution:**

The formula for calculating the implicit Cost of Trade Credit is

= [ Discount rate / (1 – Discount rate ) ] * [ 365 / (Total payment Period – period for which discount has been offered) ]

As per the information given in the question we have

Discount rate = 4 % = 0.04 ; No. of days in a period = 365 days ;

Total payment Period = 30 days ; Period for which discount has been offered = 10 days

Total payment Period – period for which discount has been offered = 30 – 10 = 20 days

Applying the above values in the formula we have

= [ 0.04 / ( 1 – 0.04 ) ] * [ 365 / ( 30 – 10 ) ]

= [ 0.04 / 0.96 ] * [ 365 / 20 ]

= 0.041667 * 18.25

= 0.760417

= 0.7604 ( when rounded off to four decimal places )

= 76.04 %

**Thus the Implicit cost of trade credit is =
0.7604**

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Problem 16-09
Cost of Trade Credit
Grunewald Industries sells on terms of 3/10, net 30. Gross sales
last year were $4,477,500 and accounts receivable averaged
$412,500. Half of Grunewald's customers paid on the 10th day and
took discounts. What are the nominal and effective costs of trade
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Calculate daily sales based on a 365-day year, calculate the
average receivables for discount customers, and then find the DSO
for the nondiscount customers.) Do not round...

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average, 82 days after their purchases. Assume 365 days in year for
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What is the days sales outstanding? Round your answer to two
decimal places.
What is the average amount of receivables? Round your answer to
the nearest cent. Do not round intermediate
calculations....

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for the year are $1,461,000; 40% of the customers pay on the
10th day and take discounts, while the other 60% pay, on
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your calculations.
What is the days sales outstanding? Round your answer to two
decimal places.
days
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the nearest cent. Do not round intermediate...

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chooses not to take the discount and makes its payment on day
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The effective annual cost is_----%. (Round to two decimal
places.)
b. What is the effective annual cost to your firm if it
chooses not to take the discount and makes its payment on day
40?
The effective annual cost...

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are limited to only one carton per order and the cost per carton is
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a) What is the cash discount price?
b) What is the implicit interest rate are Sam’s customers paying
if they do not take advantage of the cash discount?
c) What is the...

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to Bobby's nondiscount customers? (Hint: Calculate daily sales
based on a 365-day year, calculate the average receivables for
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customers.) Do not round intermediate calculations. Round your
answers...

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last year were $4,299,000, and accounts receivable averaged
$412,000. Half of Grunewald's customers paid on the 10th day and
took discounts. What are the nominal and effective costs of trade
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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...

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