Memorial Hospital purchases $2,500,000 in medical supplies from Consolidate Supplies. The terms of purchases are 3/10 net 30. Currently Memorial is paying Consolidated the full amount due on day 30 but is considering taking the discount by paying on day 10. Memorial can obtain a bank loan with a 10% annual interest rate.

Answer the following questions: What is the amount of free trade credit that Memorial obtains from Consolidated assuming 360 days per year? What is the amount of costly trade credit? What is the approximate annual interest rate of the costly trade credit? Should Memorial replace the trade credit with the bank loan? Why or why not?