1a) A large retailer obtains merchandise under the credit terms of 1/10, net 45, but...
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1a) A large retailer obtains merchandise under the credit terms of 1/10, net 45, but routinely takes 65 days to pay its bills. (Because the retailer is an important customer, suppliers allow the firm to stretch its credit terms.) What is the retailer's effective cost of trade credit? Assume 365 days in year for your calculations. Do not round intermediate calculations. Round your answer to two decimal places.
%
1b)
How many times per year does Negus Enterprises turn over its inventory? Round your answer to two decimal places.
Cost of Trade Credit
Grunewald Industries sells on terms of 3/10, net 40. Gross sales last year were $4,289,500, and accounts receivable averaged $482,000. Half of Grunewald's customers paid on the 10th day and took discounts. What are the nominal and effective costs of trade credit to Grunewald's nondiscount customers? (Hint: Calculate sales/day based on a 365-day year; then get average receivables of discount customers; then find the DSO for the nondiscount customers.) Do not round intermediate calculations. Round your answers to two decimal places.
Nominal cost
%
Effective cost
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