Question

Tasty Tuna Corporation buys on terms of 3/20, net 45 from its chief supplier. If Tasty Tuna receives an invoice for $1,889.99, what would be the true price of this invoice?

$1,833.29 $1,374.97 $1,558.30 $2,291.61

The nominal annual cost of the trade credit extended by the supplier is _____% . (Note: Assume there are 365 days in a year.)

The effective annual rate of interest on trade credit is ____% .

Suppose Tasty Tuna does not take advantage of the discount and then chooses to pay its supplier late—so that on average, Tasty Tuna will pay its supplier on the 50th day after the sale. As a result, Tasty Tuna can decrease its nominal cost of trade credit by ____% paying late.

Answer 1

a.	The price of the Invoice	1889.99*(1-0.03)	1833.29
b.	Nominal Cost of Trade Credit
	((discount/(1-discount))*(365/(Total Pay Period - Discount Period))
	((0.03/(1-0.03))*(365/(45-20))	45.15%
c.	The effective cost of trade credit
	((1+ (discount/(1-discount)))^(365/(final day - early day))) - 1
	((1+(0.03/(1-0.03)))^(365/(45-20))) - 1	56.00%
	Nominal cost of Trade Credit
	((discount/(1-discount))*(365/(Total Pay Period - Discount Period))
	((0.03/(1-0.03))*(365/(50-20))	37.63%
	Decrease in Nominal Cost of Credit
	(45.15% - 37.63%)		7.53%