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Homework answers / question archive / A firm buys on terms of 2/10, net 30, but generally does not pay until 40 days after the invoice date
A firm buys on terms of 2/10, net 30, but generally does not pay until 40 days after the invoice date. Its purchases total P1,080,000 per year. What is the approximate cost of the “non-free” trade credit?
A. 21.9%
B. 24.5%
C. 16.2%
D. 19.4%
Cost of trade credit = Discount% / (1-Discount%) * (360/(Days credit outstanding - Discount period)
= [2%/(1-2%)] * (360/(40-10)
= (0.02/0.98) * (360/30)
= 0.02040816326 * 12
= 0.24489795912
So, the cost of trade credit = 24.50%
