Assignment:
The Thompson Corporation projects an increase in sales from $1.5 million to $2 million, but it needs an additional $300,000 of current assets to support this expansion. Thompson can finance the expansion by no longer taking discounts, thus increasing accounts payable. Thompson purchases under terms of 2/10, net 30, but it can delay payment for an additional 35 days—paying in 65 days and thus becoming 35 days past due—without a penalty because of its suppliers’ current excess capacity problems. What is the effective, or equivalent, annual cost of the trade credit?
Provide complete and step by step solution for the question and show calculations and use formulas.