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. What is the approximate annual rate?

Question

Quizplus · Accepted Answer

The discount is 3% for payment within 15 days, which translates to an annual interest rate of approximately 38% when considering the cost of not taking the discount over the remaining 30 days of the credit period.

A Company Purchased Goods on Credit with Credit Terms of 3/15