The D.J. Masson Corporation needs to raise $500,000 for 1 year to supplyworking capital to a new store. Masson buys from its suppliers on termsof 3/10, net 90, and it currently pays on the 10th day and takes discounts.However, it could forgo the discounts, pay on the 90th day, and therebyobtain the needed $500,000 in the form of costly trade credit. What is theeffective annual interest rate of this trade credit?

The D.J. Masson Corporation needs to raise $500,000 for 1 year to supplyworking capital to a new store. Masson buys from its suppliers on termsof 3/10, net 90, and it currently pays on the 10th day and takes discounts.However, it could forgo the discounts, pay on the 90th day, and therebyobtain the needed $500,000 in the form of costly trade credit. What is theeffective annual interest rate of this trade credit?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter21: Supply Chains And Working Capital Management

Section: Chapter Questions

Problem 10P: The D.J. Masson Corporation needs to raise $500,000 for 1 year to supply working capital to a new...

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