Calculate the effective cost of the following trade credit terms if the discount is foregone and payment is made on the net due date
a. 2/15 net 30
b. 2/15 net 45
c. 2/15 net 60
Answer:
a. ($0.02/$0.98) × [1/(15/360)] = .4898
b. ($0.02/$0.98) × [1/(30/360)] = .2449
c. ($0.02/$0.98) × [1/(45/360)] = .1633
The cost of foregoing trade credit decreases as the length of time between the end of the discount period and the end of the net due period increases.
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