Problem 16-9

Cost of Trade Credit

Grunewald Industries sells on terms of 2/10, net 40. Gross sales last year were $4,455,500, and accounts receivable averaged $458,000. Half of Grunewald's customers paid on the 10th day and took discounts. What are the nominal and effective costs of trade credit to Grunewald's nondiscount customers? (Hint:Calculate sales/day based on a 365-day year; then get average receivables of discount customers; then find the DSO for the nondiscount customers.) Do not round intermediate calculations. Round your answers to two decimal places.

Nominal cost

Effective cost

Please show work