Suppose that a firm sells goods on terms of 2/30,net 60.Those customers who do not take the cash discount are effectively borrowing money at approximately 2% per year.

Question

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The 2% discount is for early payment within 30 days, and if not taken, the customer pays the full amount in 60 days. The effective annual interest rate for not taking the discount is much higher than 2% per year due to the short 30-day period.

Suppose That a Firm Sells Goods on Terms of 2/30,net