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What is the annualized rate of return this company can earn

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Question - A company purchases $100 worth of inventory. The terms of the sale are 2/30, net 75. Assume this company has a marginal tax rate of 21% and sells inventory on average 30 days after it is purchased. The company has an annual after-tax cost of capital 15%. All else equal, this company should pay in 30 days to take advantage of the discount.

What is the annualized rate of return this company can earn if it pays its supplier 30 days after purchase, taking the 2% discount?

Reference no: EM132969384

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