A company purchased goods on credit with credit terms of 3/15,n/45.Although the company does not have cash available to pay within the discount period,the manager of the company is considering borrowing money to take advantage of the discount.In order to make the appropriate decision,the manager computed the annual interest rate associated with the sales discount.Which of the following is the annual interest rate (rounded)? (Use 365 days a year)

Question

Quizplus · Accepted Answer

The credit terms 3/15, n/45 mean that the company can take a 3% discount if it pays within 15 days or it can pay the full amount within 45 days without any discount. To compute the annual interest rate associated with the sales discount, we can use the formula:

Discount%/(100%-Discount%) x (365/Number of days the discount is offered)

Plugging in the numbers, we get:

3%/(100%-3%) x (365/15) ≈ 37.60%

Therefore, the annual interest rate associated with the sales discount is approximately 37.60%, which is closest to choice B (38%).

A Company Purchased Goods on Credit with Credit Terms of 3/15,n/45.Although