Firms usually offer their customers some form of trade credit. This allowance comes with certain terms of credit, which affect the cost of asset for the buyer as well as the seller. Consider this case: Green Moose Industries buys most of its raw materials from a single supplier. This supplier sells to Green Moose on terms of 4/15, net 30. The cost per period of the trade credit extended to Green Moose, rounded to two decimal places, is 4.17%
Firms usually offer their customers some form of trade credit. This allowance comes with certain terms of credit, which affect the cost of asset for the buyer as well as the seller. Consider this case: Green Moose Industries buys most of its raw materials from a single supplier. This supplier sells to Green Moose on terms of 4/15, net 30. The cost per period of the trade credit extended to Green Moose, rounded to two decimal places, is 4.17%
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Transcribed Image Text:8. Cost of trade credit
Firms usually offer their customers some form of trade credit. This allowance comes with certain terms of credit, which affect the cost of asset of sale
for the buyer as well as the seller.
Consider this case:
Green Moose Industries buys most of its raw materials from a single supplier. This supplier sells to Green Moose on terms of 4/15, net
30.
The cost per period of the trade credit extended to Green Moose, rounded to two decimal places, is 4.17%
Green Moose's trade credit has a nominal annual cost of
decimal places, and your final answer to two decimal places.)
The effective annual rate (EAR) of the supplier's trade credit is
, assuming a 365-day year. (Note: Round all intermediate calculations to four
If Green Moose Industries's supplier shortens its discount period to five days, this will increase the cost of the trade credit.
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