What is the percentage cost of foregoing the payable discounts when the terms are 1/15 net 45 (rounded to the nearest whole percentage point)?

Question

Quizplus · Accepted Answer

The terms “1/15 net 45” means that the buyer can take a 1% discount if payment is made within 15 days; otherwise, the full amount is due in 45 days. The percentage cost of foregoing the discount is calculated using the following formula:
Percentage cost = (Discount % / (100% - Discount %)) x 365 / (45 - 15)
= (1% / (100% - 1%)) x 365 / 30
= 0.0101 x 12.167
= 0.1231 or 12% (rounded to the nearest whole percentage point)
Therefore, choosing not to take the discount will cost 12% in percentage terms. The best choice is option C.

What Is the Percentage Cost of Foregoing the Payable Discounts