Suppose the credit terms offered to your firm by your suppliers are 2/10,net 30 days.Out of convenience,your firm is not taking discounts,but is paying after 20 days,instead of waiting until day 30.You point out that the approximate cost of not taking the discount and paying on day 30 is around 37 percent.But since your firm is not taking discounts and is paying on day 20,what is the effective annual percentage cost (not approximate)of your firm's current practice,using a 360-day year?
A) 36.7%
B) 105.4%
C) 73.4%
D) 43.6%
E) 106.9%

Question

Quizplus · Accepted Answer

The effective annual percentage cost of not taking the discount and paying on day 20 can be calculated using the formula: [(1 + (Discount / (1 - Discount)))^(360 / (Net days - Discount days))] - 1. Plugging in the values: [(1 + (0.02 / (1 - 0.02)))^(360 / (20 - 10))] - 1 = 106.9%.

Suppose the Credit Terms Offered to Your Firm by Your