1. Aqua System Inc. expects to have $15,417,900 in credit sales during the comin
ID: 2751818 • Letter: 1
Question
1. Aqua System Inc. expects to have $15,417,900 in credit sales during the coming year. Currently all checks are sent to the home office. A proposed lockbox system can eliminate 4 days of float, releasing funds which, when invested, will earn 11.78 percent per year. What annual savings can Aqua System expect if the system is implemented? Correct answer (19,903.88) Please explain
2. Book Depot Inc. sells on terms of 2/20, net 75. What is the implicit cost of trade credit under these terms? Use a 365-day year. Correct answer (13.54)% Please explain
3. Pets Store Inc. sells on terms of 2/15, net 60. What is the effective annual cost of trade credit under these terms? Use a 365-day year. Correct answer (17.81)% Please explain
Explanation / Answer
1. Annual Savings if system is implemented = Credit sales*Rate of retun*4/365
= $15,417,900*11.78%*4/365 = $19,903.87
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