Find the effective annual after-tax interest rate

Reference no: EM132168119

Question: Sole Brother Inc. is a shoe outlet to a major shoe manufacturing industry located in Chicago. Sole Brother uses accounts payable as one of its financing sources. Shoes are delivered to Sole Brother with a 3% discount if payment on the invoice is received within 10 days of delivery. By paying after the 10-day period, Sole is borrowing money and paying (giving up) the 3% discount. Although Sole Brother is not required to pay interest on delayed payments, the shoe manufacturers require that payments not be delayed beyond 45 days after the invoice date. To be sure of paying within 10 days, Sole Brothers decides to pay on the fifth day. Sole has a marginal corporate income tax of 40% (combined state and federal). By paying within the 10- day period, Sole is avoiding paying a fairly high price to retain the money owed shoe manufacturers. What would have been the effective annual after-tax interest rate?

Reference no: EM132168119

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