Question

Quail Company's suppliers offer terms of 2/10, net 35. Using a 360-day year, what is the approximate cost of foregoing the discounts

Answer 1

0.29

Step-by-step explanation:

The computation of the approximate cost of foregoing the discounts is shown below:

Here we assume the balance to be $100

Now 2/10, net 35 means that if the person paid the amount within 10 days so he or she is eligible for the payment

So,

= $100 × (100 - 0.02)

= $98

The $98 should be paid in 10 days

or $100 for 35 days

So overall the $2 for borrowing and $98 for 25 days i.e. (35 - 10)

Now the annual percentage is

= $2 ÷ $98 × 360 days ÷ 25 days

= 0.29