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9 July, 06:00

A firm buys on terms of 2/8, net 45 days, it does not take discounts, and it actually pays after 85 days. What is the effective annual percentage cost of its non-free trade credit? (Use a 365-day year

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  1. 9 July, 06:15
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    annual percentage cost is 10.05%

    Explanation:

    given data

    time = 45 days

    terms = 2/8

    pay after A = 85 days

    year y = 365 days

    to find out

    annual percentage cost

    solution

    we will calculate here effective annual percentage cost that is

    annual percentage cost = ((1 + 2% / (1-2%)) ^y / (A-8) - 1 ... 1

    put here all value

    annual percentage cost = ((1 + 2% / (1-2%)) ^ (365 / (85-8)) - 1

    annual percentage cost = (1+0.02 / 0.98) ^ (365/77) - 1

    annual percentage cost = (1.020) ^ (365/77) - 1

    annual percentage cost = 1.10050 - 1

    so annual percentage cost is 10.05%
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