Question

Suppose one of the suppliers to Trinity Health System offers terms of 3/15, net 45.

Answer 1

Answer:

avail the customer discount =  15% or pay full amount within = 45 days

Cost of Trade Credit = 44.12 %

Explanation:

given data

terms = 3/15

net = 45.

solution

as here credit term of 3/15, net 45

so

Trinity Health  pay within =  15 days of purchase

to avail the customer discount =  15% or pay full amount within = 45 days

and

as net day  for payment = 45 day

so for the calculation of cost of trade credit, it is assume that payment is actual made on 45th  day

Cost of Trade Credit will be

Cost of Trade Credit = $(1+(\frac{0.03}{1-0.03})^{\frac{360}{45-15}}) - 1$  

Cost of Trade Credit = 0.4412

Cost of Trade Credit = 44.12 %