Skilantic Company needs to pay a supplier’s invoice of $60,000 and wants to take a cash discount of 2/10, net 40. The firm can borrow the money for 30... Accounting MCQs | Accounting MCQs

Skilantic Company needs to pay a supplier’s invoice of $60,000 and wants to take a cash discount of 2/10, net 40. The firm can borrow the money for 30 days at 11% per annum plus a 9% compensating balance.
If Skilantic fails to take the discount and pays on the 40th day, what effective rate of annual interest is it paying the vendor?

2%
24%
24.49%
36.73%Show Result

Correct - Your answer is correct.

Wrong - Your answer is wrong.

Detailed Answer

Answer (C) is correct. By failing to take the discount, Skilantic is essentially borrowing $58,800 for 30 days. Thus, at a cost of $1,200, the company acquires the use of $58,800, resulting in a rate of 2.0408% ($1,200 ÷ $58,800) for 30 days. Assuming a 360-day year, the effective annual rate is 24.49% [2.0408% × (360 days ÷ 30 days)].