Question

Assume the credit terms offered to your firm by your suppliers are 33​/55​, net 30. Calculate the cost of the trade credit if your firm does not take the discount and pays on day

30. ​(Hint: Use a​ 365-day year.)

The cost of trade credit is ___​%. ​(Rounded to two decimal​ places.)

Answer 1

Credit term = 33​/55​, net 30 = 3/5, net 30 meaning if the payment is made within 5 days then 3% discount would be received otherwise net 30 days payment terms.

Cost of trade credit would be calculated in the following steps:

Step 1: We need to divide the discount percentage, 3%, by (100% - 3%), the difference of 100% minus the 3% discount percentage = 3.09%

Step 2: Then we need to divide 365 days by the sum of full allowed payment days (30 days) minus allowed discount days (5 days) = 14.6

Step 3: Then we need to multiply the result of 3.09% by 14.6 = 45.114% Ans.