Howes Inc. purchases $4,562,500 in goods per year from its sole supplier on terms of 2/15, net
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Question:
Howes Inc. purchases $4,562,500 in goods per year from its sole supplier on terms of 2/15, net 50. What is the effective annual percentage cost of its non-free (costly) trade credit? If the firm chooses to pay on time but does not take the discount, the firm can borrow at 22% APR with semi-annual compounding. Should the firm borrow and pay on time or pay at day 50 and why?
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