(a) Find the nominal cost of trade credit (b) Find the effective cost of trade c

Question

(a) Find the nominal cost of trade credit























(b) Find the effective cost of trade credit for the customer in (a)
























Now suppose the customer stretches its payables to 45 days.




(c) Find the nominal cost of trade credit






















(d) Find the effective cost of trade credit for the customer in (c)





(a) Find the nominal cost of trade credit























(b) Find the effective cost of trade credit for the customer in (a)
























Now suppose the customer stretches its payables to 45 days.




(c) Find the nominal cost of trade credit






















(d) Find the effective cost of trade credit for the customer in (c)

Explanation / Answer

a) nominal cost of trade credit = 3/97 * 365/(30-15) = 75.26%

b) effective cost of trade credit = (1+ 3/97)^(365/(30-15)) -1 = 109.84%

c) nominal cost of trade credit = 3/97 * 365/(45-15) = 37.63%

d) effective cost of crdit = (1+ 3/97)^(365/(45-15)) -1 = 44.85%

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