The calculated cost of trade credit for a firm that buys on terms of 2/10 net 30 is lower (other things held constant)if the firm plans to pay in 40 days than in 30 days.

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The cost of trade credit is calculated as the discount lost plus the interest cost. If the firm plans to pay in 40 days instead of the usual 30 days, it will have an extra 10 days before the payment is due. This means that it can take advantage of the discount period, which offers a 2% discount. The interest cost, therefore, will be lower, resulting in a lower cost of trade credit.

The Calculated Cost of Trade Credit for a Firm That