Question

1. Suppose a firm purchases goods on credit with terms of 3/10, net 25. What is the cost of trade credit (APR) to the firm if it always pays its bill on Day 8 or sooner? In your computations, assume there are 360 days in a year.

	a.	74.23%
	b.	24.74%
	c.	44.54%
	d.	0.00%
	e.	111.34%

Answer 1

Discount	3%
Net payment	97%
So, in essence, there is an interest of $3 on $97 if the payment is not made within 10 days.
The amount is payable in 25 days so the interest of $ 3 is paid for the period from day 10 to day 25 i.e. 15 days period.
APR for 15 days	3*100/97
APR for 15 days	3.09%
APR for the year=	3.09%*360/15
APR for the year=	74.23%
Hence option A is the correct solution