Effective or equivalent, annual cost of trade credit.

Question

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%

Answer 1

Question

Chapter 16, Problem 16P

Summary Introduction

To determine: Effective or equivalent, annual cost of trade credit.

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