Tangshan Mining was extended credit terms of 4/10 net 30. The cost of giving up the cash discount, assuming payment would be made on the last day of the credit period, is closest to

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The cost of not taking the discount is calculated using the formula: $$Cost = \frac{Discount\%}{1 - Discount\%} \times \frac{360}{Days\ after\ discount\ period\ ends}$$Here, the discount is 4%, so the discount period is 10 days, and the net period is 30 days, meaning the payment is delayed for 20 more days if the discount is not taken.$$Cost = \frac{0.04}{1 - 0.04} \times \frac{360}{20} = \frac{0.04}{0.96} \times 18 = \frac{1}{24} \times 18 = 0.75 \times 18 = 13.5$$However, the correct calculation should be:$$Cost = \frac{0.04}{1 - 0.04} \times \frac{360}{20} = \frac{0.04}{0.96} \times 18 = \frac{1}{24} \times 18$$$$Cost = \frac{0.04}{0.96} \times 18 = 0.041666 \times 18 = 0.75$$$$Cost = 0.75 \times 100 = 75\%$$The mistake in the calculation led to an incorrect interpretation. The correct calculation shows that the annualized cost of forgoing the discount is 75%, not 76%. Therefore, the correct answer should be C) 75%.

Tangshan Mining Was Extended Credit Terms of 4/10 Net 30