A firm is offered trade credit terms of 3/15, net 45 days. The firm does not take the discount, and it pays after 67 days. What is the nominal annual cost of not taking the discount? (Assume a 365-day year.)
A) 21.71%
B) 22.07%
C) 22.95%
D) 23.48%
E) 24.52%

Question

Quizplus · Accepted Answer

The nominal annual cost of not taking the discount is the discount rate divided by the complement of the discount period. In this case, the discount rate is 3% and the discount period is 15 days. The complement of the discount period is 365 days - 15 days = 350 days. Therefore, the nominal annual cost of not taking the discount is 3% / (350 days / 365 days) = 21.71%.

A Firm Is Offered Trade Credit Terms of 3/15, Net