Cash Discounts

Suppose a firm makes purchases of $3 million per year underterms of 3/10, net 30, and takes discounts. Assume 365 days in ayear for your calculations. Do not round intermediatecalculations.

1. What is the average amount of accounts payable net ofdiscounts? (Assume that the $3 million of purchases is net ofdiscounts - that is, gross purchases are $3,092,784, discounts are$92,784, and net purchases are $3 million.) Round your answer tothe nearest dollar.
   $   
   
2. Is there a cost of the trade credit the firm uses?
   I. The cost of the trade credit is $246,575.
   II. There is no cost of trade credit at thispoint. The firm is using "free" trade credit.
   
3. If the firm did not take discounts but it did pay on the duedate, what would be its average payables? Round your answer to thenearest dollar.
   $   
   If the firm did not take discounts but it did pay on the due date,what would be its nominal cost? Round your answer to two decimalplaces.
        %
   If the firm did not take discounts but it did pay on the due date,what would be its effective cost? Round your answer to two decimalplaces.
        %
   
4. What would the firm's cost of not taking discounts be if itcould stretch its payments to 36 days? Round your answers to twodecimal places.

   Nominal cost	%
   Effective cost	%