A supplier grants your firm credit terms of 2/10, net 40. What is the effective annual rate of the discount if the firm purchases $4,600 worth of merchandise?

Question

Quizplus · Accepted Answer

Days in period = 40 - 10 = 30; Periods per year = 365/30 = 12.166667Interest rate for 30 days = [0.02 F1F1F1S1F1F1F10 $4,600]/[(1 - 0.02) F1F1F1S1F1F1F10 $4,600] = 0.020408Effective annual rate = (1 + .020408)^12.166667 - 1 = 27.86 percent

A Supplier Grants Your Firm Credit Terms of 2/10, Net