6. 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 2.5/15, net 45 from its chief supplier.

If Green Moose receives an invoice for $1,545.78, what would be the true price of this invoice?

$1,205.71

$1,356.43

$1,507.14

$1,582.50

The nominal annual cost of the trade credit extended by the supplier is , assuming a 365-day year.

Suppose Green Moose does not take advantage of the discount and then chooses to pay its supplier lateso that on average, . On average, Green Moose will pay its supplier on the 50th day after the sale. As a result, Green Moose can decrease its nominal cost of trade credit by by paying late.