Question - Subject Business Finance 2

1 a) Your company has been offered credit terms of 5/20, net 90 days. What will be the nominal annual percentage cost of its non free -trade credit if it pays 100 days after the purchase? Assume a 365 -day year.

b) Suppose the credit terms offered to your firm by its suppliers are 2/10, net 30 days. Your firm is not taking discounts, but is paying after 25 days instead of waiting until Day 30. Since your firm is neither taking discounts nor paying on the due date, what is the effective annual percentage cost of its non-free trade credit? Assume a 365-day yer.