Nominal Cost of Costly Trade Credit

Firm loses 0.01($3,030,303) = $30,303 of discounts to obtain $250,000 in extra trade credit, so

kNom = = 0.1212 = 12.12%.

But the $30,303 is paid all during the year, not at year-end, so EAR rate is higher.

$30,303

$250,000

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