Answer:
Nominal cost = 17.7 %.
Effective cost = 19.2 %
Step-by-step explanation:
Calculate daily sales based on a 365-day year,
calculate the average receivables for discount customers,
find the DSO for the nondiscount customers
Sales per day = $4,380,000 / 365 days = $12,000
Discounted sales = 0.50 ($12,000) = $6,000
Accounts receivable attributable to discount customers = 10 * $6,000 = $60,000
Accounts receivable attributable to non-discount customers = $493,500 - $60,000 = $433,500
Alternatively
$493,500 / $12,000 = 41.13 days i.e. 41 days
41 days = 0.50 (10) + .50 * DSO nondiscount
Non discount = 36/.50 = 72 days
Non discount are require to pay in 40 days but they are paying in 72 days
Effective cost = (1 + 2/98 ) ^ (365 / 42) - 1
1.192 - 1 = 0.192 = 19.2 %
Nominal cost = 2/98*365/42 = 0.177 = 17.7 %.