Answer:
The answer is $53,699
Explanation:
Discount = 2%
Discount days = 15 days
Net days = 40 days
Gross purchase is $800,000 per year
Discount on the purchase is $16,000(2% of $800,000)
Therefore net purchase is $784,000($800,000 - $16,000).
Net per day is:
Net purchase ÷ 365 days
$784,000 ÷ 365 days
= $2,147.95
Total trade credit = Net per day x Net days
$2,147.95 x 40 days = $85,918
Free credit = Net per day ×Discount days
=$2,147.95 x 15= $32,219
Therefore, Costly trade credit = Total credit −Free credit
$85,918 - $32,219
= $53,699
The maximum dollar amount of costly trade credit the firm could get, assuming it abides by the supplier's credit terms is $56,699.
First step
Net purchases = $800,000×(1 − 2 %)
Net purchases= $800,000×98%
Net purchases= $784,000
Second step
Net per day = $784,000/365
Net per day = $2,147.95
Third step
Total trade credit = Net days × Net per day
Total trade credit=40×$2,147.95
Total trade credit= $85,918
Fourth step
Free credit = Net per day × Discount days
Free credit =$2,147.95 x 15= $32,219
Free credit = $32,219
Fifth step
Costly credit = Total credit − Free credit
Costly credit =$85,920-$32,219
Costly credit = $53,699
Inconclusion the maximum dollar amount of costly trade credit the firm could get, assuming it abides by the supplier's credit terms is $56,699.
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