Effective cost of short-term credit

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Effective Cost of Short-Term Credit

Yonge 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 13% nominal rate; (b) borrow on a 3-month, but renewable, loan basis at an 12.00% nominal rate; (c) borrow on an installment loan basis at a 8% add-on rate with 12 end-of-month payments; or (d) obtain the needed funds by no longer taking discounts and thus inc-=reasing its accounts payable. Yonge buys on terms of 1/10, net 40. What is the effective annual cost (not the nominal cost) of the least expensive type of credit, assuming 360 days per year?

Reference no: EM132710040

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