Cash discount terms of 2/10, net 30 on an invoice would-in effect-amount to borrowing at an annual interest rate of about ________ percent if the buyer did not pay the invoice for 30 days.
A) 10
B) 30
C) 18
D) 12
E) 36

Question

Quizplus · Accepted Answer

The cash discount terms of 2/10, net 30 mean that the buyer can take a 2% discount if they pay within 10 days; otherwise, the full amount is due in 30 days. If the buyer forgoes the 2% discount to pay 20 days later (from day 10 to day 30), this is equivalent to paying 2% more for the use of the money for 20 days. To annualize this rate: (2% / 20 days) * 365 days = 36.5%, which is approximately 36%.

Cash Discount Terms of 2/10, Net 30 on an Invoice