If a buyer does not take advantage of a supplier's credit terms of 2/10,n/30,and instead pays the invoice in full at the end of 30 days,by not taking the discount the buyer loses the equivalent of 36.5% annual interest on the amount of the purchase.

Question

Quizplus · Accepted Answer

The calculation of equivalent annual interest rate for not taking the discount is as follows:

Discount lost = 2%
Credit period = 30 days
Discount period = 10 days
Effective credit period = 30 - 10 = 20 days

To calculate the equivalent annual interest rate, we can use the following formula:

(Discount % / (100% - Discount %)) x (365 / Effective credit period)

Plugging in the values, we get:

(2% / (100% - 2%)) x (365 / 20) = 36.5%

Therefore, by not taking the discount, the buyer loses the equivalent of 36.5% annual interest on the amount of the purchase.

If a Buyer Does Not Take Advantage of a Supplier's