A firm buys on terms of 2/8,net 45 days,it does not take discounts,and it actually pays after 58 days.What is the effective annual percentage cost of its non-free trade credit? (Use a 365-day year.)
A)14.34%
B)15.10%
C)15.89%
D)16.69%
E)17.52%

Question

Quizplus · Accepted Answer

To calculate the effective annual percentage cost of non-free trade credit, we need to use the formula:

Effective Annual Percentage Cost = [(Discount % / (100% - Discount %) x (365 days / (Payment Days - Discount Days))] x 100%

Plugging in the given values, we get:

Effective Annual Percentage Cost = [(2% / (100% - 2%) x (365 days / (45 - 8))] x 100%
= 0.0394 x 365/37 x 100% 
= 15.89%

Therefore, the effective annual percentage cost of non-free trade credit is 15.89%.

The best choice is C.

A Firm Buys on Terms of 2/8,net 45 Days,it Does