A firm buys on terms of 3/10, net 30. What is the cost of trade credit under these terms?
A) 55.7%
B) 47.4%
C) 31.5%
D) 23.2%

Question

Quizplus · Accepted Answer

The cost of trade credit can be calculated using the following formula:
Cost of Trade Credit = [(1 + Discount %)^(365 / (Full Allowed Payment Days - Discount Period Days)) - 1] x 100
= [(1 + 3%)^(365 / (30 - 10)) - 1] x 100
= 55.7%
Therefore, the answer is choice letter A.

A Firm Buys on Terms of 3/10, Net 30