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    Credit Terms and Cash Discounts

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    4) XieCorp is analyzing the credit terms of each of three suppliers, A, B, and C.
    Supplier Credit Terms
    A 1/15 net 40
    B 2/10 net 30
    C 2/15 net 35
    (a) Determine the approximate cost of giving up the cash discount. (b) Assuming the firm needs short-term financing, recommend whether or not the firm should give up the cash discount or borrow from the bank at 10 percent annual interest. Evaluate each supplier separately.

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    https://brainmass.com/business/finance/credit-terms-and-cash-discounts-169112

    Solution Preview

    a)
    COST OF TRADE CREDIT TO THE CUSTOMER

    R= C(365)/D(100-C)= 14.75%
    C=CASH DISCOUNT= 1%
    D= NO. OF EXTRA DAYS THAT CUSTOMER CAN USE SUPPLIERS'S FUNDS = 40-15= 25
    R= ANNUAL INTEREST RATE FOR THE USE OF THESE ...

    Solution Summary

    Credit Terms and Cash Discounts are investigated.

    $2.49

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