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Short Term Financing

?

When a company offers credit terms of 3/10, net 30, the annual interest cost based on a 360-day year is

36.7%
24.5%
37.1%
55.6%

Correct - Your answer is correct.

Wrong - Your answer is wrong.

Detailed Answer

Answer (D) is correct. The annualized cost of not taking a discount is calculated with this formula: Cost of not taking discount = [3% ÷ (100% – 97%)] × [360 days ÷ (30 days – 10 days)] = (3% ÷ 97%) × (360 days ÷ 20 days) = 3.0928% × 18 = 55.67%

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