Naptime Inc

Finance Aug 11, 2020

Naptime Inc. currently offers terms of sale of 3/30, net 80 to its customers who buy their top-end mattresses. What is the effective annual rate charged to its customers who take the full 80 days to pay?

Expert Solution

Effective interest rate= [1+(Discount %/Net Discounted %)]^(365/FT-DP)-1

here,

FT= full term allowed for payment

DP= discount period allowed for payment

Put the values in the formula;

= [1+ (3%/ (100%- 3%))]^ (365/ (80- 30))- 1

= 0.2490 or 24.90%

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