Atlas Manufacturing projects an increase in sales from $5 million to $7.5 million, but it needs an additional $850,000 of current assets to support this expansion. Atlas can finance this expansion by no longer taking discounts on its purchases, thereby increasing accounts payable. The company purchases under terms of 2/15, net 45, but it can delay payment for an additional 25 days paying in 70 days and thus becoming 25 days past due-without penalty because its suppliers currently have excess production capacity. What is the effective, or equivalent, annual cost of this trade credit? (Round your answer to two decimal places. Assume 365 days in a year for your calculations. Do not round intermediate calculations.)

Atlas Manufacturing projects an increase in sales from $5 million to $7.5 million, but it needs an additional $850,000 of current assets to support this expansion. Atlas can finance this expansion by no longer taking discounts on its purchases, thereby increasing accounts payable. The company purchases under terms of 2/15, net 45, but it can delay payment for an additional 25 days paying in 70 days and thus becoming 25 days past due-without penalty because its suppliers currently have excess production capacity. What is the effective, or equivalent, annual cost of this trade credit? (Round your answer to two decimal places. Assume 365 days in a year for your calculations. Do not round intermediate calculations.)

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter21: Supply Chains And Working Capital Management

Section: Chapter Questions

Problem 16P: The Thompson Corporation projects an increase in sales from 1.5 million to 2 million, but it needs...

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The Thompson Corporation projects an increase in sales from $1.5 million to $2 million, but it needs an additional $300,000 of current assets to support this expansion. Thompson can finance the expansion by no longer taking discounts, thus increasing accounts payable. Thompson purchases under terms of 3/10, net 30, but it can delay payment for an additional 15 days - paying in 45 days and thus becoming 15 days past due - without a penalty because its suppliers currently have excess capacity. What is the effective, or equivalent, annual cost of the trade credit? O 37.35% O 32.22% O 102.12% O 10.21% O 14.35%
The Thompson Corporation projects an increase in sales from $1.5 millionto $2 million, but it needs an additional $300,000 of current assets to support this expansion. Thompson can finance the expansion by no longertaking discounts, thus increasing accounts payable. Thompson purchasesunder terms of 2/10, net 30, but it can delay payment for an additional35 days—paying in 65 days and thus becoming 35 days past due—withouta penalty because its suppliers currently have excess capacity. What is theeffective, or equivalent, annual cost of the trade credit?
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