Effective annual interest rate of costly trade credit, Financial Accounting

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Effective annual interest rate of costly trade credit

Response to the following problem:

The D.J. Masson Corporation needs to raise $500,000 for 1 year to supply working capital to a new store. Masson buys from its suppliers on terms of 3/10, net 90, and it currently pays on the 10th day and takes discounts, but it could forgo discounts, pay on the 90th day, and get the needed $500,000 in the form of costly trade credit.

What is the effective annual interest rate of the costly trade credit?

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Financial Accounting: Effective annual interest rate of costly trade credit

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