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Nominal annual cost of trade credit

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Your company has been offered credit terms on its purchases of 4/30, net 90 days. What will be the nominal annual cost of trade credit if your company pays on the 35th day after receiving the invoice? (Asuume a 365-day year.)

a. 30%
b 304%
c. 3%
d. 87%
e. 156%

Can anyone help me solve this question. Would I apply the formula:
Knom=Discount %/(1-Discount %) * 365/(Days taken - Discount period).

If so how do I find the discount percent and discount period?

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Solution Summary

The solution explains how to calculate the nominal annual cost of trade credit

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The formula is correct.

The terms 4/30 net 90 imply that the discount is 4%, discount period ...

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