Copyright

Question: An important source of temporary cash is trade credit, which does not actually bring in...

Question:

Question:

An important source of temporary cash is trade credit, which does not actually bring in cash, but instead slows its outflow. Vendors often provide discounts for early payment.

What is the formula to determine the effective interest rate if the discount is not utilized?

True or False?

The answer is:

Debt Financing

Debt financing is one of the major financing types that provide the firm a leeway or breathing space to operate and without paying the suppliers or debtors immediately. It can be either by trade credit or corporate debt or issuance of bonds or granting a line of credit or mortgage.

Answer and Explanation:

An important source of temporary cash is trade credit, which does not actually bring in cash, but instead slows its outflow. Vendors often provide discounts for early payment. True

What is the formula to determine the effective interest rate if the discount is not utilized?

{eq}\frac{Discount}{1~-~Discount}~*~\left [ 365 \right(n~-~discount~days) ]\\ Where:\\ n~=~full~credit~terms {/eq}

Either 360 or 365 days can be used to calculate the cost of the trade credit.


Learn more about this topic:

Loading...
What Is Financing? - Definition & Types

from Corporate Finance: Help & Review

Chapter 8 / Lesson 7
117K

Related to this Question

Explore our homework questions and answers library