Chapter 15: Working Capital Management
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d. $32,795
e. $26,466
114. Roton Inc. purchases merchandise on terms of 2/15, net 40, and its gross purchases (i.e., purchases before taking off
the discount) are $525,000 per year. What is the maximum dollar amount of costly trade credit the firm could get,
assuming it abides by the supplier’s credit terms? (Assume a 365-day year.) Do not round intermediate calculations.
a. $36,297
b. $31,011
c. $42,992
d. $31,363
e. $35,240
Chapter 15: Working Capital Management
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e. 3.75%
117. Weiss Inc. arranged a $10,000,000 revolving credit agreement with a group of banks. The firm paid an annual
commitment fee of 0.5% on the unused balance of the loan commitment. On the used portion of the revolver, it paid 1.5%
above prime for the funds actually borrowed on a simple interest basis. The prime rate was 9% during the year. If the firm
borrowed $6,000,000 immediately after the agreement was signed and repaid the loan at the end of one year, what was the
total dollar annual cost of the revolver? Do not round intermediate calculations.
a. $780,000
b. $734,500
c. $650,000
d. $643,500
e. $767,000
Chapter 15: Working Capital Management
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120. Suppose the credit terms offered to your firm by its suppliers are 2/10, net 30 days. Your firm is not taking discounts,
but is paying after 13 days instead of Day 30. You point out that the nominal cost of not taking the discount and paying on
Day 30 is approximately 37%. But since your firm is neither taking discounts nor paying on the due date, what is the
effective annual percentage cost (not the nominal cost) of its costly trade credit, using a 365-day year?
a. 1,089.5%
b. 1,303.1%
c. 822.5%
d. 982.7%
e. 1,068.1%
121. Aggarwal Inc. buys 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 $425,000. What is the firm’s average accounts payable balance? Assume a 365-day
year.
a. $707,625
b. $516,375
c. $637,500
d. $567,375
e. $522,750
Chapter 15: Working Capital Management
