Exercise n5: Nominal cost and effective cost of trade credit A company buys $800,000 of materials (net of discounts) on terms of 2/5, net 60, and it currently pays after 5 days and takes discounts. The company plans to expand, and this will require additional financing. If it decides to forego discounts and thus to obtain additional credit from its suppliers, a. Compute the annual gross purchases, the Net daily purchases, the free trade credit (payables level when the company takes a discount), the total trade credit (payables level without discount) and the costly trade credit. b. What is the Nominal cost of costly trade credit? c. Compute the Effective annual cost of the trade credit d. If the company has the possibility to obtain a short term credit from its bank at a rate of 14%, should it receive the discount or rely on the trade credit