Dome Metals has credit sales of $450,000 yearly with credit terms of net 45 days, which is also the average collection perlod. a. Assume the firm offers a 2 percent discount for payment in 18 days and every customer takes advantage of the discount. Also assume the firm uses the cash generated from its reduced receivables to reduce its bank loans which cost 12 percent. What will the net gain or loss be to the firm if this discount is offered? (Use a 360-day year.)
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- 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 the $3.65 million of purchases is net of discounts—that is, gross purchases are $3,724,489.80, discounts are $74,489.80, and net purchases are $3.65 million.) Is there a cost of the trade credit the firm uses? If the firm did not take discounts but did pay on the due date, what would be its average payables and the cost of this nonfree trade credit? What would be the firm’s cost of not taking discounts if it could stretch its payments to 40 days?Dome Metals has credit sales of $468,000 yearly with credit terms of net 60 days, which is also the average collection period. a. Assume the firm offers a 3 percent discount for payment in 10 days and every customer takes advantage of the discount. Also assume the firm uses the cash generated from its reduced receivables to reduce its bank loans which cost 8 percent. What will the net gain or loss be to the firm if this discount is offered? (Use a 360-day year.) Net change in income b. Should the firm offer the discount? O No YesDome Metals has credit sales of $162,000 yearly with credit terms of net 30 days, which is also the average collection period. a. Assume the firm offers a 2 percent discount for payment in 15 days and every customer takes advantage of the discount. Also assume the firm uses the cash generated from its reduced receivables to reduce its bank loans which cost 8 percent. What will the net gain or loss be to the firm if this discount is offered? (Use a 360-day year.) Loss of: $_________
- A bank has estimated its expected (predicted) loan loss rate on its consumer loans at 3.25%. If the bank wishes to earn 8% on it consumer loans, what rate should it charge its customers? 11.34% 11.63% 4.60% 4.35% A lender engages in a 15-day $1,000,000 reverse repo at a rate of 2.50%. The haircut is 2%. The current market value of the loan is $980,000. What rate of return did the lender earn on annualized basis? Use 360-day for annualization. $1,000.42 $810.63 $466.86 $880.37 The following is not an example of a closed-end loan Automobile Loans Home mortgages Recreational vehicle loan Credit Card Core deposits of a commercial bank consist of the following except: Demand deposits Savings deposits Money…Dome Metals has credit sales of $198,000 yearly with credit terms of net 120 days, which is also the average collection period. Assume the firm adopts new credit terms of 4/10, net 120 and all customers pay on the last day of the discount period. Any reduction in accounts receivable will be used to reduce the firm's bank loan which costs 8 percent. The new credit terms will increase sales by 20% because the 4% discount will make the firm's price competitive. a. If Dome earns 25 percent on sales before discounts, what will be the net change in income if the new credit terms are adopted? (Use a 360-day year.) Net change in income b. Should the firm offer the discount? No YesDome Metals has credit sales of $288,000 yearly with credit terms of net 120 days, which is also the average collection period. Assume the firm adopts new credit terms of 3/18, net 120 and all customers pay on the last day of the discount period. Any reduction in accounts receivable will be used to reduce the firm's bank loan which costs 10 percent. The new credit terms will increase sales by 15% because the 3% discount will make the firm's price competitive. a. If Dome earns 20 percent on sales before discounts, what will be the net change in income if the new credit terms are adopted? (Use a 360-day year.) b. Should the firm offer the discount?
- Neveready Flashlights Inc. needs $340,000 to take a cash discount of 3/17, net 72. A banker will lend the money for 55 days at an interest cost of $10,400. Question 1 What is the effective rate on the bank loan? Group of answer choices 20.04% 3.06% 4.25% 10% Question 2 How much would it cost (in percentage terms) if the firm did not take the cash discount, but paid the bill in 72 days instead of 17 days? Group of answer choices 3.0% 97% 6.55% 15% Question 3 Should the firm borrow the money to take the discount? Group of answer choices No Yes I don't know Sometimes Question 4 If the banker requires a 20 percent compensating balance, how much must the firm borrow to end up with the $340,000? Group of answer choices $10,000 $1,000 $100,000 $425,000 Question 5 What would be the effective interest rate in part d if the interest charge for 55 days were $13,000? Should the firm borrow…JENNY Company has been granted credit terms of 2/10, net 30 by the supplier. JENNI operates 360 days a year.Required: 1. Compute the nominal annual cost of credit or the cost of forgoing the cash discount 2. If the prevailing nominal interest rate of commercial bank on loan is 10% per annum will it be favorable for JENNY not to pay within the discount period and use the money as the source of financing? Discuss your answer briefly. 3. Compute the effective annual rate of trader's credit.with soluAxis Wells and Excavation (AWE) currently generates $198,000 in annual credit sales. AWE sells on terms of net 50, and its accounts receivable balance averages $11,000. AWE is considering a new credit policy with terms of net 25. Under the new policy, sales will decrease to $189,000, and accounts receivable will average $12,600. Compute the days sales outstanding (DSO) under the existing policy and the proposed policy. Assume there are 360 days in a year. Round your answers to the nearest whole number. DSOExisting: days DSONew: days
- ABC Corp. has net credit sales of P1,440,000 yearly with credit terms of n/30, which is also the average collection period. BECK does not offer discounts for early payment; thus, customers take the full 30 days to pay. (Use 360 days/year) If BECK offered 2% discount for payment in 10 days and every customer took advantage of the new terms, what would the new averagereceivable balance be? Continuing from the situation in (1), if BECK reduces its bank loans which cost 10%, by the cash generated from reduced receivables, what will be the net gain/loss to the firm?Sheffield Ltd's main supplier offers it credit terms of 1/10, n/40 on its purchases. Because cash flow is tight for Sheffield, the company's CFO is trying to determine what the annual interest rate would be if the company passes up this discount and pays at the end of the 40-day credit period instead. (Round answer to 2 decimal places, e.g. 15.25.) Annual interest rate 13.01 %Wrexham Corp. (WC) purchases computer parts from its suppliers 1/15, net 30. However, to take advantage of the discount WC needs to get a bank loan. The bank charges 8% interest (APR) and a one percent origination fee for the loan (assume the loan is for 1 year and is renewed yearly). What is the effective annual cost of not taking the trade discount? What is the effective cost of the bank loan? Should WC take out the bank loan to take advantage of the trade credit?