(16–10)

Effective Cost of Trade Credit The D.J. Masson Corporation needs to raise $500,000 for 1 year to supply working capital to a new store. Masson buys from its suppliers on terms of 3/10, net 90, and it currently pays on the 10th day and takes discounts. However, it could forgo the discounts, pay on the 90th day, and thereby obtain the needed

$500,000 in the form of costly trade credit. What is the effective annual interest rate of this trade credit?