What is the effective annual cost of credit terms of 2/20 net 60, if the firm stretches the accounts payable to 80 days?
A)13.1%
B)34.2%
C)21.1%
D)6.4%

Question

Quizplus · Accepted Answer

The effective annual cost of credit terms of 2/20 net 60, if the firm stretches the accounts payable to 80 days, is 13.1%. This is because the firm is taking an additional 20 days to pay its bills, which means that it is essentially borrowing money from the supplier at an interest rate of 2% per month. Over the course of a year, this interest rate would amount to 13.1%.

What Is the Effective Annual Cost of Credit Terms of 2/20