CMA Intermediate · Financial Management and Business Data Analytics · Payable Management
A supplier offers terms 2/10, net 30 to Mehta Ltd. Using the simple (non-compounded) formula with a 360-day year, what is the annualised implicit cost of foregoing the discount and paying on day 30?
The annualised cost is 36.73%. Foregoing a 2% discount costs 2/98 for using funds an extra 20 days, and annualising with 360/20 = 18 periods gives 0.020408 x 18, about 36.73%.
- A36.73%Correct
- B24.49%
- C18.37%
- D2.04%
Explanation
Cost = [2/(100-2)] x [360/(30-10)] = 0.020408 x 18 = 36.73%. 24.49% wrongly uses a 40-day gap-type error (360/30 ). 2.04% omits annualisation.
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