A firm offers its customers 2/14 net 28.What is the cost of trade credit to a customer who chooses to pay on day 28?
A)32.8%
B)67.3%
C)69.3%
D)72.4%
E)76.1%

Question

Quizplus · Accepted Answer

The cost of trade credit is the annualized percentage of the discount lost. In this case, the customer is forgoing a 2% discount to pay on day 28 instead of day 14.

To calculate the annualized cost of forgoing the discount, we can use the following formula: 
Discount % x (365 / (Full credit period - Discount period))

Plugging in the numbers, we get: 
2% x (365 / (28 - 14)) = 69.3%

Therefore, the cost of trade credit for the customer who chooses to pay on day 28 is 69.3%.

The best choice for the customer would be to take the discount and pay on day 14, as this would result in a lower cost of trade credit (32.8%).

A Firm Offers Its Customers 2/14 Net 28