A9 (Cost of trade credit) Trade credit terms are 2/10, net 40.

A9 (Cost of trade credit) Trade credit terms are 2/10, net 40.

CORPORATE FINANCE MANAGEMENT

LEVEL B

Third Edition, by Douglas R.Emery, John D.Finnerty, and John D.Stowe

A9 (Cost of trade credit) Trade credit terms are 2/10, net 40.

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a. What is the true interest cost of skipping the discount and paying on day 40? Estimate both the APR and the APY.

b. If payment is stretched to day 55 (fifteen days late), calculate the true interest cost of skipping the discount if the supplier accepts the payment without penalty at that time. Again, estimate both the APR and the APY.
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