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What is effective or equivalent annual cost of trade credit

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Trade Credit

  • The Thompson Corporation projects an increase in sales from $1.5 million to $2 million. Still, it needs an additional $300,000 of current assets to support this expansion. Thompson can finance the development 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.

Question 1 : What is the effective or equivalent annual cost of the trade credit?

Reference no: EM132519209

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