On the commercial side often we do see something similar in managing accounts receivable. One such standard policy or practice is termed 1/10Net30 - where the customer can take a 1% cash discount off of the invoice if paid within 10 days otherwise they pay the full amount within the normal 30 days. This provides an incentive to pay early and reduce DSO. However, is it worth the 1%? Also where might we put this discount amount in our financials? Thanks
Solution Preview
SOLUTION
COST OF FORGOING 1% CASH DISCOUNT if payment Within 10 days rather than paying at 30 ...
Solution Summary
This explains the steps to compute the COST OF TRADE CREDIT TO THE CUSTOMER
What should the nominal cost of trade credit be to those customers who do not take discounts, based on a 365 day year, assuming that they pay on time, even ...
... and cost of trade credit. Problem 16-6. McDowell Industries sells on terms of 3/10, net 30. Total sales for the year are $912,500. Forty percent of customers...
... It estimates that allowing trade credit on terms of net 30 would ... The price per unit is $101 and the cost (in present ... a. Should the firm change its credit policy ...
... 0) Credit is available to fewer customers leading to reduced sales and reduced A/R. The impact on profits is uncertain as it depends upon trade of between cost...
You work for a company that extends trade credit to customers. Currently your variable cost ratio is 65% and the annual rate of interest set by the company is 4 ...
... collection policy with the result that all nondiscount customers paid on the 30th day? 2. Calculate the nominal annual cost of nonfree trade credit under each ...
... Effective annual cost of foregoing cash discounts = = [(1 ... the cash discount for different credit terms. Trade Credit Rates A firm currently offers terms of ...
... Capital budgeting focuses on the trade-off between ... financing - Accounts receivable involves extending credit to customers... and A/R represent a cost to the firm ...
