fers two credit terms to YVONE as follows: Credit term number 1: 2/15, net 30 C
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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YVONE Trading requests credit terms from its trade supplier, Mestle Corporation. YVONE operates 360 days a year. The trade supplier offers two credit terms to YVONE as follows:
Credit term number 1: 2/15, net 30
Credit term number 2: 1/10, net 90
Required:
1. Compute the nominal cost of forgoing the cash discount of the two credit terms.
2. Compute the effective cost of credit of the two terms.
3. If the prevailing bank interest rate is 15% of the nominal rate, which credit term should be bypassed to use the money as the source of financing? Discuss your answer briefly.
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