The D.J. Masson Corporation needs to raise $800,000 for 1 year to supply working capital to a new store. Masson buys from its suppliers on terms of 3/10, net 85, and it currently pays on the 10th day and takes discounts. However, it could forgo the discounts, pay on the 85th day, and thereby obtain the needed $800,000 in the form of costly trade credit. What is the effective annual interest rate of this trade credit? Assume a 365-day year. Do not round intermediate calculations. Round your answer to two decimal places.
The D.J. Masson Corporation needs to raise $800,000 for 1 year to supply working capital to a new store. Masson buys from its suppliers on terms of 3/10, net 85, and it currently pays on the 10th day and takes discounts. However, it could forgo the discounts, pay on the 85th day, and thereby obtain the needed $800,000 in the form of costly trade credit. What is the effective annual interest rate of this trade credit? Assume a 365-day year. Do not round intermediate calculations. Round your answer to two decimal places.
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
Section: Chapter Questions
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Effective Cost of Trade Credit
The D.J. Masson Corporation needs to raise $800,000 for 1 year to supply working capital to a new store. Masson buys from its suppliers on terms of 3/10, net 85, and it currently pays on the 10th day and takes discounts. However, it could forgo the discounts, pay on the 85th day, and thereby obtain the needed $800,000 in the form of costly trade credit. What is the effective annual interest rate of this trade credit? Assume a 365-day year. Do not round intermediate calculations. Round your answer to two decimal places.
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