What is the effective cost of credit terms of 3/5 net 45 if the firm stretches the accounts payable to 60 days?
A) 12.9%
B) 35.6%
C) 39.9%
D) 22.4%

Name: What is the effective cost of credit terms of 3/5 net 45 if the firm stretches the accounts payable to 60 days? A) 12.9% B) 35.6% C) 39.9% D) 22.4%
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Quizplus · Accepted Answer

D) 3 / 97 = 1.031%; 60 days - 5 days = 55 days; Number of 55 days in a year = 365 days / 55 days = 6.636; Effective Annual cost = (1.0309)^6.636 - 1 = 22.40%

What Is the Effective Cost of Credit Terms of 3/5