PROBLEM TWO A company is evaluating a potential opportunity to stretch its payment terms with a supplier for the next few months. Annual NET Purchases $5,465,850 Purchase Terms 1/16, NET 38 Supplier approved extended NET Terms 48 days CALCULATE FREE Trade Credit $ Average Accounts Payable at NET terms $ Effective Cost of Non-free Trade Credit % at Original Purchase Terms Effective Cost of Non-free Trade Credit % at EXTENDED approved NET Terms

Problem TWO:

Dollar Amount of FREE Trade Credit

Average Accounts Payable (based on net)

Effective Cost EFF% (based on net)

Effective Cost EFF% (extended terms)