Final answer:
The annual return of paying on the 10th day for a 2/10, net 30 term is approximately 37% when calculated using the formula (Discount % / (100 - Discount %)) * (360 / (Full Payment Days - Discount Days)).
Step-by-step explanation:
To calculate the annual return percentage when taking advantage of a 2/10, net 30 discount, you would compare the savings from the discount to the amount that would have otherwise been paid full price after the full credit term of 30 days.First, you recognize that by paying on the 10th day, you save 2% of the payment that otherwise would be made on the 30th day. This implies a 2% savings for moving the payment up by 20 days. To calculate the equivalent annual return, think of this as an 'interest' earned over those 20 days, and scale it up to a full year.The actual formula to determine the annualized percentage return (A) from a trade discount is:A = (Discount % / (100 - Discount %)) * (360 / (Full Payment Days - Discount Days))In this scenario:A = (2 / 98) * (360 / 20) = 0.020408 * 18 = 36.73%,To the nearest percent, the annual return of paying on the 10th day for a 2/10, net 30 term is 37%.
To calculate the annual return when paying on the 10th day for a 2/10, net/30 discount, we need to consider the discount percentage and the number of times it can be applied in a year.2/10 means there is a 2% discount if payment is made within 10 days, otherwise the total amount is due in 30 days. If we assume there are 12 months in a year, we can calculate the annual return by finding how many times the discount can be applied in a year.Since the discount only applies for 10 days, and there are 365 days in a year, the discount can be applied 365/10 = 36.5 times. Therefore, the annual return for a 2/10, net/30 discount is approximately 2% x 36.5 = 73%.