3. Cost of trade credit

Firms usually offer their customers some form of trade credit. This allowance comes with certain terms of credit, which affect the cost of asset of sale for the buyer as well as the seller.

Consider this case:

Green Moose Industries buys on terms of 3.5/20, net 30 from its chief supplier.

If Green Moose receives an invoice for $2,100.98, what would be the true price of this invoice? (Note: Round all intermediate calculations to four decimal places, and your final answer to two decimal places.)

$1,520.59

$1,824.71

$1,621.96

$2,027.45

The nominal annual cost of the trade credit extended by the supplier is 164.30% / 119.25% / 109.98% / 132.50% , assuming a 365-day year. (Note: Round all intermediate calculations to four decimal places, and your final answer to two decimal places.)

Suppose Green Moose does not take advantage of the discount and then chooses to pay its supplier lateso that on average, Green Moose will pay its supplier on the 35th day after the sale. As a result, Green Moose can decrease its nominal cost of trade credit by 75.09% / 81.71% / 53.00% / 44.17% by paying late. (Note: Round all intermediate calculations to four decimal places, and your final answer to two decimal places.)