Cost of trade credit: Senter Corp. sells its goods with terms of 2/10 EOM, net 30. What is the implicit cost of the trade credit?

Question

Quizplus · Accepted Answer

The terms 2/10 EOM, net 30 means that Senter Corp. offers a 2% discount to customers who pay within 10 days, and the full amount is due in 30 days.

To calculate the implicit cost of the trade credit, we can use the following formula:
Implicit cost of trade credit = (Discount % / (100% - Discount %)) x (365 / (Full credit period - Discount period))
where,
Discount % = 2%
Full credit period = 30 days
Discount period = 10 days

Plugging in the values, we get:
Implicit cost of trade credit = (2 / (100 - 2)) x (365 / (30 - 10)) = 0.4459 or 44.59%

Therefore, the best choice is C.

Cost of Trade Credit: Senter Corp