Cost of Trade Credit

A large retailer obtains merchandise under the credit terms of 1/15, net 40, but routinely takes 65 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 effective cost of trade credit? Assume 365 days in year for your calculations. Do not round intermediate calculations. Round your answer to two decimal places.

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Cost of Trade Credit

A large retailer obtains merchandise under the credit terms of 3/20, net 30, but routinely takes 50 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 effective cost of trade credit? Assume 365 days in year for your calculations. Do not round intermediate calculations. Round your answer to two decimal places.

Effective cost of trade credit = (1+0.0309)^12.17 1.0 = 44.86%

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