Working Capital Management Quiz-3 Working Capital Management

Question-1 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. 2/ 10, net 60 3/ 10, net 45

Question-2 Suppose a firm makes purchases of $3.65 million per year under terms of 2/ 10, net 30 and takes discounts. What is the average amount of accounts payable net of discounts? (Assume that $3.65 million of purchases is net of discounts- that is gross purchases are $3,724,490, discounts are $74,490 and net purchases are $3.65 million). If the firm did not take discounts but it did pay on the due date, what would be its average payables and the cost of this non-free trade credit? What would its cost of not taking discounts be if it could stretch its payments to 40 days?