A firm in the above question receives 5/10, net 60 trade credit terms from its suppliers. This firm has a below investment grade (junk) credit rating, therefore the bank can only provide a loan to this firm at 20% annual interest. The firm consistently fails to pay suppliers on day 10 but pays by day 60. This firm should get a loan from the bank at 20% in order to make payments to their suppliers on day 10.

True or False

"above question"

The implicit annual cost of borrowing when using the trade credit with the terms 5/10, net 60 (and not making payments by day 10 but making them on day 60) is closest to which one of the following annual interest rates?

answer of 38%