If ViaHire foregoes the discount but does not pay for its purchases until day 40, what is ViaHire effective cost of using this source of credit? Assume that no penalty is incurred for late payment.

Question

Quizplus · Accepted Answer

ViaHire's effective cost of using this source of credit can be calculated using the formula:

Effective cost of credit = (Discount % / (100% - Discount %)) * (365 days / (Term of credit - Discount period))

Plugging in the numbers,

Effective cost of credit = (2% / (100% - 2%)) * (365 days / (40 days - 10 days))

Effective cost of credit = 0.02483 or 2.48%

Therefore, ViaHire's effective cost of using this source of credit is 2.48%, which is option C.

If ViaHire Foregoes the Discount but Does Not Pay for Its