Dixie Tours Inc.buys on terms of 2/15,net 30.It does not take discounts,and it typically pays 35 days after the invoice date.Net purchases amount to $720,000 per year.What is the approximate percentage cost of its non-free trade credit?
A) 17.2%
B) 23.6%
C) 26.1%
D) 36.7%
E) 50.6%

Question

Quizplus · Accepted Answer

The cost of not taking the discount can be calculated using the formula: Cost = (Discount % / (1 - Discount %)) * (360 / (Full payment days - Discount days)). Substituting the given values: Cost = (2% / (1 - 2%)) * (360 / (35 - 15)) = 36.7%.