Firms usually offer their customers some form of trade credit. This allowance co
ID: 2734883 • Letter: F
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: Tasty Tuna Corporation buys on terms of 2/20, net 60 from its chief supplier. If Tasty Tuna receives an invoice for $2,100.98, what would be the true price of this invoice? $1,853.06 $2,161.91 $2,058.96 $1,647.17 The nominal annual cost of the trade credit extended by the supplier is______. Suppose Tasty Tuna does not take advantage of the discount and then chooses to pay its supplier late-so that on average,. On average, Tasty Tuna will pay its supplier on the 65th day after the sale. As a result, Tasty Tuna can decrease its nominal cost of trade credit by_____by paying late.Explanation / Answer
Payment received = $2100.98
Discount (d) = 2 %
True price of invoice = 2100.98 / 98% = 2161.91 (approx)
Nominal (NIR) cost = (d/(100-d))*(365/t)
2/20 net 60
(2/98)*(365/40)
= .020408 * 9.125
= .186224
or 18.62%
d = 2 = amount of discount per $100
(100 – d) = 98 = discounted amount per $100
365 = number of days in the year
t = 60 - 20 = net days minus the discount days = 40
The nominal annual cost of the trade credit extended by the supplier is 18.62 %
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