Pets Store Inc. sells on terms of 3/20, net 35. What is the effective annual cost of trade credit under these terms? Use a 365-day year. Round answer to two decimal places.
Pets Store Inc. sells on terms of 3/20, net 35. What is the effective annual cost of trade credit under these terms? Use a 365-day year. Round answer to two decimal places.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Pets Store Inc. sells on terms of 3/20, net 35. What is the effective annual cost of trade credit under these terms? Use a 365-day year. Round answer to two decimal places.
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Step 1: Define cost of trade credit
The cost of trade credit refers to the financial expense incurred by a company when purchasing goods or services on credit terms. It is typically measured as the difference between the purchase price on credit and the cash discount offered for early payment. These costs can include interest charges, late payment penalties, and any additional fees associated with the credit purchase. Companies must consider these costs when deciding whether to take advantage of trade credit or seek alternative financing options.
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