Question 1

**Section B - Case 1: Verdant Yields Co**

*Scenario:* Verdant Yields Co is an organic avocado exporter. The business is highly seasonal. Annual credit sales are $18,250,000. The current trade receivables balance is $3,000,000. Assume a 365-day year.

**Question 2:** To improve cash flow, Verdant Yields is considering offering a 2% early settlement discount to customers who pay within 15 days. Currently, customers pay at 60 days.

What is the effective annual cost of offering this discount? (Use the compound interest formula)

Accepted Answer

Use the formula: Annualized Cost = [1 + (d / (100 - d))] ^ (365 / t) - 1, where 'd' is the discount percentage and 't' is the reduction in payment days.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Using the simple interest formula instead of the compound formula, or using 15 days for 't' instead of the difference (45 days).

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FM — Financial Management Practice Exam 5

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