When credit terms for a sale are 2/15,n/40,the customer saves by paying early.What percent (rounded)would this savings amount to on an annual basis?
A)18.2%.
B)20.0%.
C)29.2%.
D)36.5%.

Question

Quizplus · Accepted Answer

The terms 2/15, n/40 mean the customer can take a 2% discount if they pay within 15 days, otherwise, the full amount is due in 40 days. The difference in days is 25 (40-15), so the customer essentially gets a 2% return on their money in 25 days. To annualize this return, we use the formula: Annualized Return = (Discount / (1 - Discount)) * (365 / Days). Plugging in the values: (0.02 / (1 - 0.02)) * (365 / 25) = 0.0204 * 14.6 ≈ 29.2%.

When Credit Terms for a Sale Are 2/15,n/40,the Customer Saves