1. Working Capital Management
Quiz-3
Working Capital Management

2. 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

3. 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?