The cost of not taking the discount on trade credit of 3/20, net 90 is equal to
A) 15.9%
B) 16.3%
C) 18.0%
D) 17.4%

Question

Quizplus · Accepted Answer

The cost of not taking the discount is the difference between the net price and the price paid if the discount is taken. In this case, the net price is $100 and the price paid if the discount is taken is $97. Therefore, the cost of not taking the discount is $3. The cost of not taking the discount as a percentage of the net price is $3/$100 = 0.03 = 3%. Since the discount period is 20 days and the credit period is 90 days, the cost of not taking the discount for a year is 3% x (360 days/70 days) = 15.9%.

The Cost of Not Taking the Discount on Trade Credit