Howes Inc. purchases $4,562,500 in goods per year from its sole supplier on terms of 3/14, net 54. If the firm chooses to pay on time but does not take the discount, what is the effective annual percentage cost of its non-free trade credit? (Assume a 365-day year.) (Note: Write your answer in percentage format; i.e., write 1% instead of 0.01.)

1.59K views
0

Howes Inc. purchases $4,562,500 in goods per year from its sole supplier on terms of 3/14, net 54. If the firm chooses to pay on time but does not take the discount, what is the effective annual percentage cost of its non-free trade credit? (Assume a 365-day year.) (Note: Write your answer in percentage format; i.e., write 1% instead of 0.01.)

0

Answer : 20.90 %

Working Notes

effective annual percentage cost of its non-free trade credit

= discount/(100-discount) x 365/(Dayspaid after purchase )
=3/(100-3) * 365/(54)

=3/97*365/54

=0.030927835*365/54

=0.209049255

=20.90%

Contact us today

Ask for our academic services

Copyright SmartStudyHelp 2016. All Rights Reserved