Question

A firm is offered trade credit terms of 2/8, net 45 days. The firm does not take the discount. It pays after 58 days. What is the effective annual cost (EFF%) of not taking this discount

Answer 1

Answer: 15.89%

Explanation:

Since no discounts were taken, this company made your job a whole lot easier because if we are for instance assuming a 365 day year then you simply take the base period of payments which is 58 days in this scenario and divide by 365.

So it would come out like,

= 58/365

= 15.89%

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