Freeman Builders, Inc.buys on terms of 2/15, net 30.It does not take discounts, and it typically pays 60 days after the invoice date.Net purchases amount to $720,000 per year.What is the nominal annual percentage cost of its non-free trade credit, based on a 365-day year?
A) 10.86%
B) 12.07%
C) 13.41%
D) 14.90%
E) 16.55%

Question

Quizplus · Accepted Answer

The nominal annual percentage cost of not taking the discount can be calculated using the formula: [(Discount % / (1 - Discount %)) * (365 / (Full Payment Due Date - Discount Period))]. Plugging in the values: [(2% / (1 - 2%)) * (365 / (60 - 15))] = 16.55%.