10. Cost of trade credit Aa Aa Firms usually offer their customers some form of

Question

10. Cost of trade credit Aa Aa Firms usually offer their customers some form of trade credit. This allowance comes with certain terms of credit, which will affect the actual cost of asset being sold for the buyer and the seller. Consider this case: Purple Turtle Group buys most of its raw materials from a single supplier. This supplier sells to Purple Turtle on terms of 2.5/10, net 60. The cost per period of the trade credit extended to Purple Turtle, rounded to two decimal places, is Purple Turtle's trade credit has a nominal annual cost of intermediate calculations to four decimal places, and your final answer to two decimal places.) , assuming a 365-day year. (Note: Round all If Purple Turtle Group's supplier shortens its discount period to five days, this will credit. the cost of the trade

Explanation / Answer

If supplier shortens the discount period to five days, this will reduce the of the trade credit.

Nominal cost of trade credit: = (1+D÷(1-D))^(365÷n)-1 D is discount rate n is Number of days after discount period Nominal cost of trade credit 18.72% (0.025/(1-0.025)*((365/(60-10))))

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.