Freeman Builders, Inc.buys on terms of 2/15, net 30.It does not take discounts, and it typically pays 60 days after the invoice date.Net purchases amount to $720, 000 per year.What is the nominal annual percentage cost of its non-free trade credit, based on a 365-day year?

Question

Quizplus · Accepted Answer

11ea1b84_8bd0_2b93_a54a_7d7cc2c68491_TB3581_00 
Nom.% cost = Disc.%/(100 - Disc.%)×(365/(Actual days - Disc.days)
Nom.% cost = 2.04% ×8.11 = 16.55%
The effective discount % is earned N times per year; the product is the nominal annual cost rate.