A firm buys on terms of 3/15,net 45.It does not take the discount,and it generally pays after 60 days.What is the nominal annual percentage cost of its non-free trade credit,based on a 365-day year?
A)25.09%
B)27.59%
C)30.35%
D)33.39%
E)36.73%

Question

Quizplus · Accepted Answer

The correct answer is A because the nominal annual percentage cost of non-free trade credit is 25.09%. This is calculated as follows:Discount = 3%Credit period = 45 daysNon-free trade credit period = 60 daysDays beyond credit period = 15 daysNominal annual percentage cost = (Discount / (1 - Discount)) * (365 / Days beyond credit period)= (3% / (1 - 3%)) * (365 / 15)= 25.09%

A Firm Buys on Terms of 3/15,net 45