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Question 3 i) Goldsboro Industries has an average accounts payable balance of 680,000....

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Finance

Question 3

i) Goldsboro Industries has an average accounts payable balance of 680,000. Its annual cost of goods sold is 4,500,000, and it receives terms of 1/10, net 40 from its suppliers. Goldsboro chooses to forgo this discount. Is Goldsboro managing its accounts payables well? Explain why or why not.

(7 marks)

ii) Goldsboro Industries wants to borrow 1 million for two months. Using its inventory as collateral, it can obtain a 10% (APR) loan (compounded monthly). The lender requires that a warehouse arrangement be used. The warehouse fee is 10,000, payable at the end of the two months. Calculate the effective annual rate of this loan for Goldsboro Industries.

(7 marks)

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