Aggarwal Inc.buys on terms of 2/10,net 30,and it always pays on the 30th day.The CFO calculates that the average amount of costly trade credit carried is $375,000.What is the firm's average accounts payable balance? (Assume a 365-day year.)

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The firm's average accounts payable balance can be calculated by understanding that the costly trade credit is the difference between what they would pay if they took advantage of the discount and what they actually pay by not taking the discount. Since they always pay on the 30th day, they are foregoing the 2% discount they could have taken advantage of by paying on the 10th day. The $375,000 represents the additional cost of not taking the discount over the course of a year. To find the average accounts payable balance, we need to calculate the total purchases they make in a year that leads to this additional cost. The formula to find the average accounts payable when the discount is not taken is: Costly Trade Credit = Average Accounts Payable * Discount % * (360 / (Payment Days - Discount Days)). Rearranging this formula to solve for Average Accounts Payable gives us: Average Accounts Payable = Costly Trade Credit / (Discount % * (360 / (Payment Days - Discount Days))). Plugging in the values from the question (Costly Trade Credit = $375,000, Discount % = 2%, Payment Days = 30, Discount Days = 10) gives us: Average Accounts Payable = $375,000 / (0.02 * (360 / (30 - 10))) = $375,000 / (0.02 * 18) = $375,000 / 0.36 = $1,041,666.67. However, this calculation seems to misunderstand the question's intent, leading to an incorrect conclusion. The correct approach should consider the effective annual cost of not taking the discount and how it relates to the average accounts payable balance. Given the discrepancy, let's correct the explanation based on the information provided and the options available.The correct calculation should focus on understanding that the average amount of costly trade credit carried ($375,000) is essentially the firm's average accounts payable balance since they are not taking advantage of discounts and are paying on the 30th day. The question seems to imply that the $375,000 is the balance they carry on average due to their payment practices. Therefore, without the need for the detailed calculation as initially attempted, the average accounts payable balance is directly given by the question as the amount of costly trade credit carried, which is $375,000. However, this direct interpretation does not match any of the provided answer choices exactly, indicating a misunderstanding in the initial explanation.Given the provided options and the scenario described, the correct approach to determine the firm's average accounts payable balance involves understanding the terms and implications of not taking the discount but paying at net. The question directly states the average amount of costly trade credit carried is $375,000, which might suggest looking at how this figure relates to the overall accounts payable strategy of the firm. However, without a clear formula or direct calculation provided in the question that aligns with the given options, the initial explanation attempted to apply a formula that does not directly lead to a correct answer among the provided choices.Reevaluating the correct answer based on the provided options and the information given in the question, without a straightforward calculation that matches the options, it seems there might have been a misunderstanding in the application of the formula or the interpretation of the question's data. The question's details about payment terms and the calculation of costly trade credit suggest a need for a calculation that directly ties these elements to the average accounts payable balance, but the exact calculation method and the correct answer choice might require a clearer understanding of the financial principles involved or a correction in the initial interpretation of the question's requirements.