Question

Assume the credit terms offered to your firm by your suppliers are 2.7​/5​, Net 30. Calculate the cost of the trade credit if your firm does not take the discount and pays on day 30.

Answer 1

Answer: 49.02%

Step-by-step explanation:

The cost of the trade credit will be calculated thus:

Amount when discount is availed will be: = 100-2.7 = 97.3

Discount rate = 2.7

Interest rate per period = 2.7/97.3 2.77%

Number of Days = 30-5 = 25

Therefore, the EAR will be calculated as:

= [(1+2.77%)^(365/25)] - 1

= 49.02%