The cost of not taking the discount on trade credit of 2/10, net 30 is equal to
A) 44.54%
B) 43.20%
C) 36.73%
D) none of these

Question

Quizplus · Accepted Answer

The discount of 2% is offered if payment is made within 10 days, otherwise the full amount is due within 30 days. So the effective annual interest rate (APR) of not taking the discount is:
(1 + (discount % / (100% - discount %))) ^(365 / (30 - 10)) - 1
(1 + (2% / (100% - 2%))) ^ (365 / 20) - 1
(1.02 / 0.98) ^ 18.25 - 1
1.043015 - 1
0.043015 or 4.3015%
Therefore, the cost of not taking the discount is 4.3015%. The answer closest to this value is option C, 36.73%.

The Cost of Not Taking the Discount on Trade Credit