Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN: 9781337395083
Author: Eugene F. Brigham, Phillip R. Daves
Publisher: Cengage Learning
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Transcribed Image Text: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:
Purple Turtle Group buys on terms of 3/10, net 30 from its chief supplier.
If Purple Turtle receives an invoice for $856.75, what would be the true price of this invoice?
$1,163.47
$1,038.81
$706.39
$831.05
The nominal annual cost of the trade credit extended by the supplier is
(Note: Assume there are 365 days in a year.)
The effective annual rate of interest on trade credit is
Suppose Purple Turtle does not take advantage of the discount and then chooses to pay its supplier late-so that on average, Purple Turtle will pay its
supplier on the 35th day after the sale. As a result, Purple Turtle can decrease its nominal cost of trade credit by
% by paying late.
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