John has purchased goods from a hardware supplier and has been offered trade credit terms of 1.5/10, n/40.

Calculate

(a) the opportunity cost of trade credit in this case. Assuming that John can borrow from their bank at a rate of 10%, should they take up the discount?

 (b) 30 days ago, BHP Ltd. Issue a $1,000,000 face value 90-day bank-accepted bill into the market to fund the purchase of new machinery. When issued, the bill had a yield of 5.5% per annum. Today, the original discounter of the bill decided to sell the BHP bill in the secondary market at a yield of 4.5%. What rate of return is earned by the original discounter of the bill? 

Answer rating: 100% (QA)

John has been given 1510 n40 as trade credit conditions This implies that if John pays their payment within 10 days they will receive a 15 reduction I... View the full answer