MoJo Corporation purchases goods on credit terms of 4.5/15, net 40. The cost of non-free trade credit for the 25-day period if the firm did not take discounts but did pay on the due date is:

Question

Quizplus · Accepted Answer

The cost of non-free trade credit formula is [(1 + Discount %)^(Number of Days in the Payment Period / Number of Days in a Year) - 1] x (Number of Days in a Year / Number of Days in the Payment Period).

[(1 + 4.5%)^(25/365) - 1] x (365/25) = 0.0471 or 4.71%

Therefore, the best answer choice is B.

MoJo Corporation Purchases Goods on Credit Terms of 4