Question

Assume the credit terms offered to your firm by your suppliers are 2/10, net 30 . Calculate the cost of the trade credit if your firm does not take the discount and pays on day 30 . (Hint: Use a 365 -day year.) The cost of trade credit is ___%. (Rounded to two decimal places.)

Answer 1

The cost of trade credit when the firm does not take the discount and pays on day 30, given the terms are 2/10, net 30, is approximately 36.73%.

Step-by-step explanation:

To calculate the cost of trade credit when the firm does not take the discount and instead pays on the 30th day, we use the formula for the cost of not taking a trade discount:

C = = (Discount % / (100 - Discount %)) = (360 / (Full payment deadline - Discount period))

Where:

• Discount % = 2%
• 100 - Discount % = 98%
• Full payment deadline = 30 days
• Discount period = 10 days

Plugging the numbers:

C = = (2% / (98%)) = (360 / (30 - 10))

C = (0.02040816327) = (360 / 20)

C = (0.02040816327) = 18

C = 36.73469388%

Therefore, the cost of trade credit is approximately 36.73%.