Question

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

(a) When does the system have to pay its bills from this supplier in order to get the discount?
(b) What is the approximate cost of the costly trade credit offered by this supplier? (Assume 360 days per year.)

Answer 1

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

Cost of Trade Credit = 44.12 %

Step-by-step 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+((0.03)/(1-0.03))^{(360)/(45-15)}) - 1`

Cost of Trade Credit = 0.4412

Cost of Trade Credit = 44.12 %