FINA 450 MNE Working Capital Management Exercises Trident Europe, the German sub

Question

FINA 450 MNE Working Capital Management Exercises Trident Europe, the German subsidiary of a U.S. company, has 15,000,000 in accounts receivable for sales billed to customers on terms of 2/30 n/60. Costumers usually pay in 30 days. Trident Europe also has 9,000,000 of accounts payable billed to it on terms of 3/10 n/60, trident Germany delays payment until the last minute because it is normally short of cash. Trident Europe normally carries an average cash balance for transactions of 4.500,000. How much cash could Trident Europe save by taking the discount?

Explanation / Answer

Trident can save by taking discount on account payables by paying off within 10 days .It will get 3% cash discount

i.e.9000000*3%=270000

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