Question
Howes Inc. purchases $4,562,500 in goods per year from its sole supplier on terms of 2/15, net 50. What is the effective annual percentage cost
Howes Inc. purchases $4,562,500 in goods per year from its sole supplier on terms of 2/15, net 50. What is the effective annual percentage cost of its non-free (costly) trade credit? If the firm chooses to pay on time but does not take the discount, the firm can borrow at 22% APR with semi-annual compounding. Should the firm borrow and pay on time or pay at day 50 and why?
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Foundations of Finance The Logic and Practice of Financial Management
Authors: Arthur J. Keown, John D. Martin, J. William Petty
8th edition
132994879, 978-0132994873
