Question

A firm buys on terms of 3/15, net 45. It does not take the discount, and it generally pays after 85 days. What is the nominal annual percentage cost of its non-free trade credit, based on a 365-day year? The firm's APR of not taking the trade credit is ____. (If you use percent, then do not use the percent sign. Go two places to the right of the decimal point (XX.XX). If you use decimal places, then go four places to the right of the decimal place. 0.XXXX). 0.1613

Answer 1

What is the nominal annual percentage cost of its non-free trade credit, based on a 365-day year? The firm's APR of not taking the trade credit is 0.1613.

Step-by-step explanation:

The nominal cost of its non-free trade credit = the discounts lost for paying late.

In this case, the seller offers a 3% discount if the firm pays within 15 days.

annual financial cost = [discount / (100% - discount)] x [365 / (repayment time - discount period)]

annual financial cost = [3% / (100% - 3%)] x [365 / (85 - 15)] = (3% / 97%) x (365 / 70) = 0.1613 or 16.13%