Detailed Answer
Answer (B) is correct. The payment terms are 2/10, net 60. This means that Richardson will get a 2% discount, which would equal $2 ($100 × 2%), if it pays the invoice within 10 days. This means that not taking the discount will cost $2. This amount is partially offset by interest earned on $98 for 50 days of $.817. Thus, the net cost is $1.183 ($2.00 – $.817). Since a 360-day year has 7.2 fifty-day periods, the total annualized cost is $8.52 (7.2 × $1.183). The loss rate is about 8.7% ($8.52 ÷ $98).