Your company has been offered credit terms of 4/30,net 90 days.What will be the nominal annual cost of trade credit if you pay 100 days after the purchase? (Assume a 365-day year.)

Question

Quizplus · Accepted Answer

The formula to calculate the nominal annual cost of trade credit is:

Nominal Annual Cost of Trade Credit = (Discount % / (1 - Discount %)) x (365 / (Credit Period - Discount Period))

Here, Discount % = 4%, Credit Period = 90 days, and Discount Period = 30 days.

So, the nominal annual cost of trade credit can be calculated as:

Nominal Annual Cost of Trade Credit = (4 / (1 - 0.04)) x (365 / (90 - 30))

Nominal Annual Cost of Trade Credit = 21.73%

Therefore, the best choice is B.

Your Company Has Been Offered Credit Terms of 4/30,net 90