Question

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Calculate the nominal annual cost of trade credit under each of the following terms. Assume a...

Calculate the nominal annual cost of trade credit under each of the following terms. Assume a 365-day year. Do not round intermediate calculations. Round your answers to two decimal places.

  1. 1/15, net 30.

    24.58 %

  2. 2/10, net 55.

    16.55 %

  3. 3/10, net 45.

      %

  4. 2/10, net 45.

      %

  5. 2/15, net 40.

    29.80 %

Solutions

Expert Solution

Nominal cost of trade credit = [Discount % / (100% − Discount %)] × [365 / (Final due date − Discount period)]

a. Nominal cost of trade credit = (1/99) × [365 / (30 - 15)] = 0.2458 or 24.58%

b. Nominal cost of trade credit = (2/98) × [365 / (55 - 10)] = 0.1655 or 16.55%

c. Nominal cost of trade credit = (3/97) × [365 / (45 - 10)] = 0.3225 or 32.25%

d. Nominal cost of trade credit = (2/98) × [365 / (45 - 10)] = 0.2128 or 21.28%

e. Nominal cost of trade credit = (2/98) × [365 / (40 - 15)] = 0.2980 or 29.80%

jeff jeffy answered 2 years ago
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