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# (1) Suppose your supplier offered you credit terms of 1.5/10 net 40 days. Your firm is not taking discounts, but is paying after 35

## (1) Suppose your supplier offered you credit terms of 1.5/10 net 40 days. Your firm is not taking discounts, but is paying after 35 days instead of waiting until Day 40. What is the effective annual percentage cost (not the nominal cost) of its costly trade credit, using a 365-day year? (3 points) (2) Jeter Inc. purchases merchandise on terms of 2/10 net 30, and it always pays on the 30th day. The CFO calculates that the average amount of costly trade credit carried is $375,000. What is the firm's average accounts payable balance? (Assume a 365-day year.) (3 points) (3) Boone & Co.'s last free cash flow (year 0) was $1.75 million. Its free cash flow growth rate is expected to be constant at 25% for 2 years, after which free cash flows are expected to grow at a rate of 6% forever. Its weighted average cost of capital is 12%. Boone & Co. has $5 million in short-term investments and $7 million in debt and has 1 million shares outstanding. What is the best estimate of the current intrinsic stock price? (5 points)

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