Phranklin Pharms Inc. purchases merchandise from a company that gives sales terms of 2/15, net 40 days. Phranklin Pharms has gross purchases of $819,388 per year. What is the maximum amount of costly trade credit Phranklin could get, assuming it abides by the supplier's credit terms? (Assume a 365-day year.)

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The maximum amount of costly trade credit Phranklin could get is $88,000. This is calculated as follows:Gross purchases = $819,388Discount period = 15 daysCredit period = 40 daysNumber of days in a year = 365 daysAverage payment period = (Discount period x Credit period) / (Credit period - Discount period)= (15 days x 40 days) / (40 days - 15 days)= 600 days / 25 days= 24 daysCostly trade credit = Gross purchases x (Average payment period / Number of days in a year)= $819,388 x (24 days / 365 days)= $88,000