What is the effective annual interest rate of trade credit

Assignment Help Financial Management

Reference no: EM13847679

Effective Cost of Trade Credit

The D.J. Masson Corporation needs to raise $400,000 for 1 year to supply working capital to a new store. Masson buys from its suppliers on terms of 1/10, net 90, and it currently pays on the 10th day and takes discounts. However, it could forgo discounts, pay on the 90th day, and get the needed $400,000 in the form of costly trade credit. What is the effective annual interest rate of this trade credit? Assume 365 days in year for your calculations. Do not round intermediate calculations. Round your answer to two decimal places.

Reference no: EM13847679

Questions Cloud

Violation of weak form efficiency : Which among the following is a violation of weak form efficiency?

Which reactant was the limiting reagent : If 4.55 g of sodium sulfide and 15.0 g of bismuth nitrate are dissolved in separate beakers of water which are then poured together, what is the maximum mass of bismuth sulfide (an insoluble compound), that could precipitate ? Which reactant was the ..

What type of business combination would result from company : What type of business combination would result from Parent Company acquiring Sub Company to form Super-Parent Company?

An investment in real estate venture : An investment in a real estate venture will provide after tax cash flows for the next 5 years as follows: year 1, $ 7,500; year 2 $10,000; year 3 $11,000; year 4, $13,500, and year 5, $415,000. An investor would like to earn an annual return of 13%. ..

What is the effective annual interest rate of trade credit : The D.J. Masson Corporation needs to raise $400,000 for 1 year to supply working capital to a new store. Masson buys from its suppliers on terms of 1/10, net 90, and it currently pays on the 10th day and takes discounts. What is the effective annual ..

Large retailer obtains merchandise under the credit terms : A large retailer obtains merchandise under the credit terms of 1/15, net 45, but routinely takes 60 days to pay its bills. (Because the retailer is an important customer, suppliers allow the firm to stretch its credit terms.) What is the retailer's e..

Accounting for anthropometric differences : Is there a relationship between systolic blood pressure and how long the Sherpas have lived in their new environment, the Kathmandu valley, after accounting for anthropometric differences? Does this effect vary by age?

Abnormal returns on insider knowledge : Martha Stewart earned abnormal returns on insider knowledge. Which form(s) of market efficiency does this violate?

What criteria should the federal government control : Should the federal government intervene and set criteria that monitor all state funded pension plans? What criteria should the federal government control?

User Account

All Pages