Newsome Inc

Finance Aug 29, 2020

Newsome Inc. buys on terms of 3/15, net 45. It does not take the discount, and it generally pays after 60 days. What is the nominal annual percentage cost of its non-free trade credit, based on a 365-day year?

Expert Solution

Computation of the nominal annual percentage cost of its non-free trade credit:-

Nominal annual percentage cost = (Discount / (1 - Discount)) * (365 /(Maximum payable days - Discount period))

= (3% / (1 - 3%)) * (365 / (60 - 15))

= 0.03093 * 8.1111

= 25.09%

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