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Problem 16-04 Cost of Trade Credit A large retailer obtains merchandise under the credit terms of 2/15, net...

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Finance

Problem 16-04
Cost of Trade Credit

A large retailer obtains merchandise under the credit terms of2/15, net 45, but routinely takes 60 days to pay its bills.(Because the retailer is an important customer, suppliers allow thefirm to stretch its credit terms.) What is the retailer's effectivecost of trade credit? Assume 365 days in year for yourcalculations. Do not round intermediate calculations. Round youranswer to two decimal places.

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Solution The formula for calculating the effective cost of trade credit is 1 Discount rate 1 Discount Rate n 1 Where n No of days in a period Total payment Period    See Answer
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