6. Cost of trade credit Firms usually offer their customers some form of trade c

Question

6. Cost of trade credit Firms usually offer their customers some form of trade credit. This allowance comes with certain terms of credit, which affect the cost of asset of sale for the buyer as well as the seller. Consider this case: omninode Co. buys most of its raw materials from a single supplier. This supplier sells to Omninode Co. on terms of 3/20, net 60. What is the cost per period of the trade credit extended to Omninode Co.? (Note: Use 365 days as the length of a year in all calculations.) 3.55% 0 2.47% 3,09% 3.4096 What is the nominal annual cost of Omninode Co.'s trade credit? tr Omninode Co's supplier shortens the discount periad to five days, this will credit the cost of the trade

Explanation / Answer

the effective interest cost = (1/1-0.03) = 3.09%

nominal annual cost of interest = 3.09%*365/40 = 28.22%

decrease

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