Atlanta Cement,Inc.buys on terms of 2/15,net 30.It does not take discounts,and it typically pays 60 days after the invoice date.Net purchases amount to $720,000 per year.What is the nominal annual percentage cost of its non-free trade credit,based on a 365-day year?
A)10.86%
B)12.07%
C)13.41%
D)14.90%
E)16.55%

Question

Quizplus · Accepted Answer

The nominal annual percentage cost of not taking the discount can be calculated using the formula: Cost = (Discount % / (1 - Discount %)) * (365 / (Full payment period - Discount period)). Here, it is (2% / 98%) * (365 / (60 - 15)) = 16.55%.