Compute effective and annual cost of the trade credit

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Reference no: EM1367916

The Thompson company projects an rise in sales from $1.5 million to $2 milliion, but requires 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 2/10, net 30, but it can delay payment for an additional 35 days- paying in 65 days and thus becoming 35 days past due- without a penalty because its suppliers currently have excess capacity.

What is the effective, or equvialent, annual cost of the trade credit?

Reference no: EM1367916

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