Trade credit-nominal cost and effective cost

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Reference no: EM131917137

Trade Credit

The Thompson Corporation projects an increase in sales from $1 million to $3 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 1/10, net 30, but it can delay payment for an additional 25 days - paying in 55 days and thus becoming 25 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? Round your answers to two decimal places. Assume 365 days in year for your calculations. Do not round intermediate calculations.

Nominal cost %

Effective cost %

Reference no: EM131917137

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