Wyatt Oil purchases goods from its suppliers on terms 3/20 net 40.The effective annual cost to Wyatt if they do not take the discount and pay on day 50 is closest to:

Question

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B)The interest rate per period is $3/$97 = .031.If the firm delays payment until the 50th day,it has use of the funds for 30 days beyond the discount period.There are 365/30 = 12.167 30 day periods in one year.Thus,the effective annual cost is (1 + .031)^12.167 - 1 = .45 or 45.0%

Wyatt Oil Purchases Goods from Its Suppliers on Terms 3/20