Sole Brother Inc. is a shoe outlet to a major

Chapter , Problem 12-13

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Sole Brother Inc. is a shoe outlet to a major shoemanufacturing industry located in Chicago. SoleBrother uses accounts payable as one of its financ-ing sources. Shoes are delivered to Sole Brotherwith a 3% discount if payment on the invoice isreceived within 10 days of delivery. By paying afterthe 10-day period, Sole is borrowing money andpaying (giving up) the 3% discount. Although SoleBrother is not required to pay interest on delayedpayments, the shoe manufacturers require that pay-ments not be delayed beyond 45 days after theinvoice date. To be sure of paying within 10 days,Sole Brothers decides to pay on the fifth day. Solehas a marginal corporate income tax of 40% (com-bined state and federal). By paying within the 10-day period, Sole is avoiding paying a fairly highprice to retain the money owed shoe manufacturers.What would have been the effective annualafter-taxinterest rate?

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