A firm buys on terms of 2/8,net 45 days,it does not take discounts,and it actually pays after 63 days.What is the effective annual percentage cost of its non-free trade credit? (Use a 365-day year. )
A) 14.35%
B) 12.48%
C) 14.06%
D) 17.79%
E) 11.19%

Question

Quizplus · Accepted Answer

The effective annual percentage cost of non-free trade credit is 14.35%. This is calculated by taking the discount rate (2%) and dividing it by the complement of the discount period (1 - 8/365) and then multiplying by 365/365 - 63/365.

A Firm Buys on Terms of 2/8,net 45 Days,it Does