Question

1)How much will it cost you, on an annualized basis, if you do not take the discount with the following terms? 3.5/11 net 30

2)If you do not have available funds, but you have access to a credit card that has a rate of 18%, which of the following would you do?

		not take the discount and wait until 30 days to pay
		take the discount by borrowing on your credit card
		not take the discount because you should never use credit cards
		not take the discount because 3.5% is very low

Answer 1

1.

2.

Effective cost of trade credit is 98.26 and cost of borrowing is 18%. Since borrowing rate is lower than cost of trade credit, so take the discount by borrowing on your credit card.

Option (B) is correct answer.