TexasLight Fruit Company has credit terms of 2/15 net 45. Customers should take the discount and pay in 15 days if they CANNOT earn more than ________ (EAR) on their investments.
A) 17.81%
B) 27.86%
C) 24.83%
D) 16.55%

Question

Quizplus · Accepted Answer

The effective annual rate (EAR) can be calculated using the formula for the discount: EAR = [(1 + (Discount / (1 - Discount)))^(365 / (Full Payment Due - Discount Period))] - 1. Plugging in the values: EAR = [(1 + (0.02 / 0.98))^(365 / (45 - 15))] - 1 = 27.86%.

TexasLight Fruit Company Has Credit Terms of 2/15 Net 45