A firm buys on terms of 3/15, net 45. It does not take the discount, and it generally pays after 85 days. What is the nominal annual percentage cost of its non-free trade credit, based on a 365-day year? a. 16.13% b. 18.55% c. 17.58% d. 15.00% e. 13.22%

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Mathematics

Reginald Armstrong

Today, 14:45

A firm buys on terms of 3/15, net 45. It does not take the discount, and it generally pays after 85 days. What is the nominal annual percentage cost of its non-free trade credit, based on a 365-day year? a. 16.13% b. 18.55% c. 17.58% d. 15.00% e. 13.22%

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Jessica Weaver · Answer 1

a. 16.13%

Step-by-step explanation:

By not taking the discount, the company pays ...

1 / (1 - 0.03) - 1 ≈ 3.0928%

for the use of the creditor's money for 85 - 15 = 70 days.

This translates to an annual rate x according to the proportion ...

3.0928%/70 = x/365

x = (365/70) (3.0928%) ≈ 16.13%

The APR of the credit the company is using is about 16.13%.