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Sagot :
1. The amount of the free trade credit that Monument Health obtains from Cardinal Health is $400,000.00.
2. The total amount of trade credit offered by Cardinal is $404,000.00.
3. The approximate annual cost of the costly trade credit is 72%.
4. No. Monument Health should not replace a portion of the trade credit with a bank loan.
5. If the bank loan is used, the trade credit should be replaced by $133,333.00.
What is trade credit?
Trade credit is a business arrangement that allows the buyer to buy goods in exchange for later payment.
Giving trade credit is costly to the seller but profitable to the buyer, especially with the offer of cash discounts.
Data and Calculations:
Gross prices = $400,000
Terms of trade = 1/5, net 15
Bank loan = $400,000
Loan interest rate = 12%
Days per year = 360 days
Cost of Trade Credit for 5 days = $4,000.00 ($400,000 x 1%)
Annualized cost = 72% (1%/5 x 360)
Cost of bank loan for 10 days = $1,333.33 ($400,000 x 12% x 10/360)
Learn more about trade credit and cash discounts at https://brainly.com/question/14883253
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