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Cost of Trade Credit
Grunewald Industries sells on terms of 1/10, net 50. Gross sales last year were $4,072,000, and accounts receivable averaged $442,000. Half of Grunewald's customers paid on the 10th day and took discounts. What are the nominal and effective costs of trade credit to Grunewald's nondiscount customers? (Hint: Calculate sales/day based on a 365-day year; then get average receivables of discount customers; then find the DSO for the nondiscount customers.)
Nominal cost ___%
Effective cost ___%
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