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Nominal cost of trade credit

A. If a firm buys under terms of 3/15, net 45, but actually pays on the 20th day and still takes the discount, what is the nominal cost of its nonfree trade credit?

b. Does it receive more less credit than it would if it paid within 15 days?

Solution Preview

The formula to calculate Nominal rate of trade credit is

Nominal rate of trade credit = Discount %/(1 - Discount %) * ...

Solution Summary

The solution computes the nominal cost of trade credit.