A firm buys on terms of 3/15,net 45.It does not take the discount,and it generally pays after 110 days.What is the nominal annual percentage cost of its non-free trade credit,based on a 365-day year?
A) 9.03%
B) 13.78%
C) 10.69%
D) 11.88%
E) 11.17%

Question

Quizplus · Accepted Answer

To calculate the nominal annual percentage cost of non-free trade credit, we need to use the following formula:

Nominal annual percentage cost = [(Discount % / (1 - Discount %)] x [(365 / Credit period) - Discount period]

where:
- Discount % = percentage of discount offered (in this case, 3%)
- Credit period = number of days given to pay without incurring a penalty (in this case, 45 days)
- Discount period = number of days within which the discount can be taken (in this case, 15 days)

Plugging in the values, we get:
Nominal annual percentage cost = [(0.03 / (1 - 0.03))] x [(365 / 45) - 15]
Nominal annual percentage cost = 0.1188 or 11.88%

Therefore, the answer is D.

A Firm Buys on Terms of 3/15,net 45