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Mavericks Cosmetics buys $3,798,658 of product (net of discounts) on terms of 2/10, net 60, and it currently pays on the 10th day and takes discounts. Mavericks plans to expand, and this will require additional financing. If Mavericks decides to forego discounts, what would the effective percentage cost of its trade credit be, based on a 365-day year

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Tundexiidn

if Mavericks decides to forego discounts, then, 15.89% would be the effective percentage of cost of its trade credit.

Effective cost of not taking discount = (1 + (%Discount / (1-Discount%)^ (365/(Total days - Discount days)) -1

Effective cost of not taking discount = (1 + (2% / (100%-2%))^(365/(60-10)) -1

Effective cost of not taking discount = (1.02040816327^7.3) - 1

Effective cost of not taking discount = 1.15890983226 - 1

Effective cost of not taking discount = 0.15890983226

Effective cost of not taking discount = 15.89%

Therefore, if Mavericks decides to forego discounts, then, 15.89% would be the effective percentage of cost of its trade credit.

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