The Thompson corporation projects an increase in sales from $1.5 million to $2 milliion, but needs an additional $300,000 of current assets to support this expansion. Thompson can finance the expansion by no longer taking discounts, thus increasing accounts payable.Thompson purchases under terms of 2/10, net 30, but it can delay payment for an additional 35 days- paying in 65 days and thus becoming 35 days past due- without a penalty because its suppliers currently have excess capacity.
What is the effective, or equvialent, annual cost of the trade credit?
Please use the EAR formula and show your work.
The EAR is calculated by taking the periodic rate and compounding it using the compounding frequency
EAR = (1+periodic ...
The solution explains how to calculate the effective annual cost of trade credit