Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Problem 21-16 Trade Credit The Thompson Corporation projects an increase in sales from $1.5 million to $2.5 million, but it needs an additional $300,000 of

Problem 21-16 Trade Credit The Thompson Corporation projects an increase in sales from $1.5 million to $2.5 million, but it needs an additional $300,000 of current assets to support this expansion. Thompson can finance the expansion by no longer taking discounts, thus increasing accounts payable. Thompson purchases under terms of 2/10, net 30, but it can delay payment for an additional 40 days - paying in 70 days and thus becoming 40 days past due - without a penalty because of its suppliers currently have excess capacity. What is the effective, or equivalent, annual cost of the trade credit? Round your answers to two decimal places. Assume 365 days in year for your calculations. Do not round intermediate calculations. Nominal cost % Effective cost %

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

More Books

Students also viewed these Finance questions

Question

Choose the best chart for your dataset.

Answered: 1 week ago

Question

7. What is Tobins q, and what does it have to do with investment?

Answered: 1 week ago