# Your firm purchases goods from its supplier on terms of 1.3 / 15, net 40 ( a.) What is the...

## Question:

Your firm purchases goods from its supplier on terms of 1.3 / 15, net 40

( a.) What is the effective annual cost to your firm if it chooses not to take the discount and makes its payment on day 40? The effective annual cost is...... %. (Round to two decimal places.)

( b.) What is the effective annual cost to your firm if it chooses not to take the discount and makes its payment on day 50? The effective annual cost is........... %. (Round to two decimal places.)

Generally, suppliers offer credit for a period to the buyers as per their credit policy and may offer discounts for early payments. Trade credit is expressed in terms of credit policy like 2/15, net 55 or 4/10, net 30 etc. Here the credit terms 1.3/15, net 40 means that the amount is due in 40 days but the customer can avail 1.3% cash discount on the invoice value if he pays within 15 days.

Effective annual rate of interest = (Discount/(1- discount))*(365/(Payment day - Discount days))

A. The effective annual cost to your firm if it...

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