Annual credit sales of Nadak Co. total $320.6 million. The firm gives a 2.25% ca

Question

Annual credit sales of Nadak Co. total $320.6 million. The firm gives a 2.25% cash discount for payment within 10 days of the invoice date; 90% of Nadak's accounts receivable are paid within the discount period. Required: (a) What is the total amount of cash discounts allowed in a year? (Enter your answer in millions. Round your answer to 2 decimal places. Omit the "$" sign in your response.) Total amount $ million (b) What should be the approximate annual rate of return on investment that Nadak Co.'s cash discount terms represent to customers who take the discount? Note: (Assume a credit period of 30 days and 360-days year). (Round your answer to 1 decimal place. Omit the "%" sign in your response.) ROI %

Explanation / Answer

Annual credit sales of Nadak Co. total $340 million. The firm gives a 2% cash discount for payment within 10 days of the invoice date; 90% of Nadak's accounts receivable are paid within the discount period . Required: (a) What is the total amount of cash discounts allowed in a year? (Enter your answer in millions. Round your answer to 2 decimal places. Omit the "$" sign in your response.) answer = Total amount $ 6.12 million (b) What should be the approximate annual rate of return on investment that Nadak Co.'s cash discount terms represent to customers who take the discount? Note: (Assume a credit period of 30 days and 360-days year). (Round your answer to 1 decimal place. Omit the "%" sign in your response.) ROI 36 %

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