Determine the annual financing cost of the source

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Harpo Music Mart needs to raise $300,000 to increase its working capital. The bank, mindful of Harpo's strained financial condition, has refused to loan the firm the needed funds. Harpo is considering stretching its accounts payable in order to raise the funds. Current credit terms are "3/10, net 30." Payments beyond the credit period are subject to a 1 percent per month penalty.

Harpo purchases $125,000 per month from its suppliers and currently takes cash discounts.

If Harpo is able to raise the $300,000 it needs by stretching its accounts payable, determine the annual financing cost of this source of financing. For this problem, assume that a year consists of twelve 30-day months.

Reference no: EM131336629

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