The annual cost of trade credit assuming a 365-day year for terms 3/10 net 40 is...

Question

Question

The annual cost of trade credit assuming a 365-day year for terms 3/10 net 40 is

closest to:

A. 43.3%

B. 44.9%.

C. 32.0%

D. 27.8%

business finance

Answer 1

Answer #1

b. 44.9%

Cost of trade credit = [1 + (Disc.%/100 - Disc.%)]^[365 / (Days Credit Outstanding – Discount Period)] - 1

Cost of trade credit = [1 + (3/97)]^[365 / (40 - 10)] - 1

Cost of trade credit = 0.449 or 44.9%

Answer 2

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