Maple Motors buys axles in order to produce automobiles. Maple carries an average credit balance of $25,000,000 with its axle supplier. The axle suppl... Accounting MCQs | Accounting MCQs

Maple Motors buys axles in order to produce automobiles. Maple carries an average credit balance of $25,000,000 with its axle supplier. The axle supplier provides credit terms of 1/10 net 25. The nominal annual cost of Maple not taking the trade discount is closest to which one of the following? Assume a 360-day year.

14.4%
14.5%
24.0%24.2%Show Result

Correct - Your answer is correct.

Wrong - Your answer is wrong.

Detailed Answer

Answer (D) is correct. The annualized cost of not taking a discount can be calculated with this formula: Cost of not taking discount = [1% ÷ (100% – 1%)] × [360 days ÷ (25 days – 10 days)] = (1% ÷ 99%) × (360 days ÷ 15 days) = 24 × 1.0101%
= 24.24%