Atlanta Cement,Inc.buys on terms of 2/15,net 30.It does not take discounts,and it typically pays 55 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

Using the formula for nominal annual percentage cost: 
Nominal Annual Percentage Cost = (Discount % / (1- Discount %)) x (365 / (Full allowed payment days - Discount days))

Substituting the given values: 
Discount % = 2% 
Full allowed payment days = 30 days 
Discount days = 15 days

Nominal Annual Percentage Cost = (2% / (1- 2%)) x (365 / (30 - 15)) 
Nominal Annual Percentage Cost = 18.62%

Therefore, the answer is B.