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?