One of my quLast week, Jorge met with several of the firm's larger, more creditworthy customers,...

 

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One of my quLast week, Jorge met with several of the firm's larger, more creditworthy customers, including the Turner Newspaper Group. In the course of this meeting, he suggested terms of 4/10 net 15, but two things became quickly apparent: Not everyone remembered how to calculate the cost of trade credit, so a review of the equation should be conducted; and While everyone acknowledged that these terms are consistent with the industry's standards, they are concerned with the magnitude of the implicit costs associated with paying on various dates throughout the credit period. Therefore, you need to do two things: Identify the individual elements in the annual financing cost of trade credit equation; and Calculate the implicit costs of paying on several dates throughout Extensive's credit period. Begin with the identification of the variables in the annual financing cost of trade credit equation. Then, use the equation to compute the annual financing cost of the trade credit assuming that the invoices are paid on the indicated days. Remember, Jorge suggested terms of 4/10 net 15. Cost of = Variable A(100 - Variable C)Variable A(100 - Variable C) x Trade Credit Variable E(Variable B - Variable D)Variable E(Variable B - Variable D) Variable A B с D E Payment Date Day 10 Day 11 Day 15 Day 25 (Two weeks late) Identity of the Variable Percent cash discount Credit period Percent cash discount Discount period 365 days per year Cost of Trade Credit One of my quLast week, Jorge met with several of the firm's larger, more creditworthy customers, including the Turner Newspaper Group. In the course of this meeting, he suggested terms of 4/10 net 15, but two things became quickly apparent: Not everyone remembered how to calculate the cost of trade credit, so a review of the equation should be conducted; and While everyone acknowledged that these terms are consistent with the industry's standards, they are concerned with the magnitude of the implicit costs associated with paying on various dates throughout the credit period. Therefore, you need to do two things: Identify the individual elements in the annual financing cost of trade credit equation; and Calculate the implicit costs of paying on several dates throughout Extensive's credit period. Begin with the identification of the variables in the annual financing cost of trade credit equation. Then, use the equation to compute the annual financing cost of the trade credit assuming that the invoices are paid on the indicated days. Remember, Jorge suggested terms of 4/10 net 15. Cost of = Variable A(100 - Variable C)Variable A(100 - Variable C) x Trade Credit Variable E(Variable B - Variable D)Variable E(Variable B - Variable D) Variable A B с D E Payment Date Day 10 Day 11 Day 15 Day 25 (Two weeks late) Identity of the Variable Percent cash discount Credit period Percent cash discount Discount period 365 days per year Cost of Trade Credit

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To calculate the annual financing cost of trade credit we need to use the provided equation and input the values for the variables Lets start by ident... View the full answer