fers two credit terms to YVONE as follows: Credit term number 1: 2/15, net 30 C

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter18: The Management Of Accounts Receivable And Inventories
Section: Chapter Questions
Problem 5P
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YVONE Trading requests credit terms from its trade supplier, Mestle Corporation. YVONE operates 360 days a year. The trade supplier offers two credit terms to YVONE as follows:

Credit term number 1: 2/15, net 30

Credit term number 2: 1/10, net 90

Required:

1. Compute the nominal cost of forgoing the cash discount of the two credit terms.

2. Compute the effective cost of credit of the two terms.

3. If the prevailing bank interest rate is 15% of the nominal rate, which credit term should be bypassed to use the money as the source of financing? Discuss your answer briefly.

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