onge Corporation must arrange financing for its working capital requirements for the coming year. Yonge can: (a) borrow from its bank on a simple interest basis (interest payable at the end of the loan) for 1 year at a 15% nominal rate; (b) borrow on a 3-month, but renewable, loan basis at an 11.1% nominal rate; (c) borrow on an installment loan basis at a 6% add-on rate with 12 end-of-month payments, assuming you borrowed $100; (d) obtain the needed funds by no longer taking discounts and thus increasing its accounts payable. Yonge buys on terms of 1/15, net 60. What is the effective annual cost (not the nominal cost) of each type of credit, assuming 360 days per year? Do not round intermediate calculations. Round your answers to two decimal places. Credit C: % Credit D: %
Effective Cost of Short-Term Credit
Yonge Corporation must arrange financing for its
Credit C: %
Credit D: %
Cost of Trade Credit
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If a firm buys under terms of 3/15, net 55, but actually pays on the 20th day and still takes the discount, what is the nominal cost of its nonfree trade credit? Assume a 365-day year. Do not round intermediate calculations. Round your answer to two decimal places.
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