Senter Corp. sells its goods with terms of 2/10 EOM, net 30. What is the implicit cost of the trade credit? Round your final percentage answer to 2 decimal places. Do not round your intermediate calculations.
A) 18.50%
B) 30.00%
C) 44.59%
D) 21.89%

Question

Quizplus · Accepted Answer

2/10 EOM, net 30 means that the customer can take a 2% discount if they pay within 10 days, otherwise the full amount is due in 30 days. 
To calculate the implicit cost of the trade credit, we need to calculate the cost of not taking the discount and paying within 30 days. 
The formula for this is: 
(Discount % / (100% - Discount %)) x (365 / (Full allowed payment days - Discount days)) = Implicit annual rate 
(2 / (100 - 2)) x (365 / (30 - 10)) = 44.59%

Therefore, the implicit cost of the trade credit is 44.59%.
The best choice is C.