The D.J. Masson Corporation needs to raise $500,000 for 1 year to supply working

Question

The D.J. Masson Corporation needs to raise $500,000 for 1 year to supply working capital to a new store. Masson buys from its suppliers on terms of 3/10, net 90, and it currently pays on the 10th day and takes discounts. However, it could forgo the discounts, pay on the 90th day, and thereby obtain the needed $500,000 in the form of costly trade credit. What is the effective annual interest rate of this trade credit?

PLEASE NOTE: I know the answer is 14.91%. The textbook says so. I just can't figure out how it got there. First person to adequately explain it will get a five star rating.

Explanation / Answer

A company can evaluate trade discounts using the following formula:

[Percent Discount/(100

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