A firm offers terms of 2/15, net 45. (Enter your answers as directed, but do not

Question

A firm offers terms of 2/15, net 45. (Enter your answers as directed, but do not round intermediate calculations.) Requirement 1: What effective annual interest rate does the firm earn when a customer does not take the discount? (Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) What effective annual interest rate does the firm earn if the discount is changed to 3 percent? (Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) What effective annual interest rate does the firm earn if the credit period is increased to 65 days? (Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) What effective annual interest rate does the firm earn if the discount period is increased to 20 days? (Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

Explanation / Answer

Cost of trade credit: = (1+D÷(1-D))^(365÷n)-1 D is discount rate n is Number of days after discount period 1) 27.86% (1+0.02/(1-0.02))^(365/30)-1 2) 44.86% (1+0.03/(1-0.03))^(365/30)-1 3) 15.89% (1+0.02/(1-0.02))^(365/50)-1 4) 34.31% (1+0.02/(1-0.02))^(365/25)-1

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