Purba Ltd. Purchased Some Goods Costing Tk. 50,000 With The Terms Of 3/15 Net 30 EOM On January 12

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Purba Ltd. purchased some goods costing Tk. 50,000 with the terms of 3/15 net 30 EOM on January 12, How much will the firm pay if it takes the cash discount? Also, find out the cost of trade credit if the firm fails to take a cash discount.

Here are the step-by-step solutions for both parts of the problem:

Part 1: Amount Paid with Cash Discount

The credit terms 3/15 net 30 EOM mean the buyer receives a 3% cash discount if paid within 15 days after the end of the month (EOM); otherwise, the net amount is due within 30 days after EOM.

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Part 2: Cost of Trade Credit (If Cash Discount is Foregone)

By foregoing the cash discount, the firm effectively borrows Tk. 48,500 for an additional 15 days

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at a cost of Tk. 1,500.

1. Nominal Annual Cost (APR):

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(Note: If using a 365-day year, the nominal cost is

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)

2. Effective Annual Rate (EAR):

If compounded over the year:

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Summary of Answers:

Amount paid with discount: Tk. 48,500
Nominal Cost of Trade Credit: 74.23% (using 360 days) or 75.26% (using 365 days)
Effective Annual Rate (EAR): 107.72%

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