Hammington Clinics, Inc., buys $300,000 in medical supplies each year (at gross prices) from its major...

 

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Hammington Clinics, Inc., buys $300,000 in medical supplies each year (at gross prices) from its major supplier, which offers Hammington terms of 1/15, net 60. Currently, Hammington is paying the supplier the full amount due on day 60, but it is considering taking the discount, paying on day 15, and replacing the costly trade credit with a bank loan that has a 9 percent annual cost. Assume 360 days per year. a. What is the amount of free trade credit that Hammington obtains from the major supplier? b. What is the amount of costly trade credit? c. What is the approximate annual percentage cost of the costly trade credit? d. If the bank loan is used regardless of the cost of trade credit, how much of the trade credit should be replaced? e. Based on your calculation, do you recommend Hammington replace its trade credit with the bank loan? Explain your answer. Hammington Clinics, Inc., buys $300,000 in medical supplies each year (at gross prices) from its major supplier, which offers Hammington terms of 1/15, net 60. Currently, Hammington is paying the supplier the full amount due on day 60, but it is considering taking the discount, paying on day 15, and replacing the costly trade credit with a bank loan that has a 9 percent annual cost. Assume 360 days per year. a. What is the amount of free trade credit that Hammington obtains from the major supplier? b. What is the amount of costly trade credit? c. What is the approximate annual percentage cost of the costly trade credit? d. If the bank loan is used regardless of the cost of trade credit, how much of the trade credit should be replaced? e. Based on your calculation, do you recommend Hammington replace its trade credit with the bank loan? Explain your answer.