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Mr. Hugh Warner is a very cautious businessman. His supplier offers trade credit terms of 2/13,...

Mr. Hugh Warner is a very cautious businessman. His supplier offers trade credit terms of 2/13, net 75. Mr. Warner never takes the discount offered, but he pays his suppliers in 65 days rather than the 75 days allowed so he is sure the payments are never late. What is Mr. Warner's cost of not taking the cash discount?

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Answer #1
Credit terms 2% if payment is done in 13 days
Payment term 65 days
Credit period 52 days is taken
Suppose the payable amount is 100
Discount of 2 can be taken in making payment on 13th day but the payment is done in 65 days
so this discount is cost of not taking discount
Annualized cost =2*365/52
Annualized cost in % 14.04
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