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Book Depot Inc. sells on terms of 2/20, net 30. What is the implicit cost of...

Book Depot Inc. sells on terms of 2/20, net 30. What is the implicit cost of trade credit under these terms? Use a 365-day year.

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Answer #1
Formula to calculate implicit cost of trade credit
Implicit cost of trade credit = (Discount /100-Discount)*(365/(Maximum payable period-Discount period))
Calculation of implicit cost of trade credit
Implicit cost of trade credit = (2 /100-2)*(365/(30-20))
Implicit cost of trade credit = (2 /98)*(365/10)
Implicit cost of trade credit = 0.020408*(365/10)
Implicit cost of trade credit 74.49%
The implicit cost of trade credit is 74.49%
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