Your firm purchases goods from its supplier on terms of
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Practice Problems

Your firm purchases goods from its supplier on terms of

(i) What is meant by “stretching the accounts payable”?

(ii) Your firm purchases goods from its supplier on terms of 1.7/15, Net 35.

a. What is the effective annual cost to your firm if it chooses not to take the discount and makes its payment on day 35?

b. What is the effective annual cost to your firm if it chooses not to take the discount and makes its payment on day 45?

Hint
Accounts & Finance"Stretch Accounts Payable" refers to a company's policy not to pay before the specified payment date. Pay off the liabilities due after the due date without paying the penalty, or pay after the discount period without receiving the discount. This approach for quick funding....

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