Question

Firms usually offer their customers some form of trade credit. This allowance comes with certain terms of credit, which affect the cost of asset of sale for the buyer as well as the seller.

Consider this case:

Purple Turtle Group buys on terms of 2.5/10, net 60 from its chief supplier.

If Purple Turtle receives an invoice for $1545.78, what would be the true price of this invoice? (Note: Round all intermediate calculations to four decimal places, and your final answer to two decimal places.)

A.) $1,130.36

B.) $2,110.00

C.) $1,507.14

D.) $1,055.00

The nominal annual cost of the trade credit extended by the supplier is________________, assuming a 365-day year. (Note: Round all intermediate calculations to four decimal places, and your final answer to two decimal places.)

A.) 20.93% C.) 18.69%

B.) 16.82% D.) 13.08%

Suppose Purple Turtle does not take advantage of the discount and then chooses to pay its supplier late—so that on average, . On average, Purple Turtle will pay its supplier on the 65th day after the sale. As a result, Purple Turtle can decrease its nominal cost of trade credit by__________________by paying late. (Note: Round all intermediate calculations to four decimal places, and your final answer to two decimal places.)

A.) 1.70 C.) 2.04

B.) 3.06 D.) 3.32

Answer 1

Answer:

Note: Since we are calculating in excel, the cost of trade credit in part b is approximate value. Due to rounding the answer might differ. For Question 2, the correct answer should be 18.69%.

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