Business FinancesQuestion 1223 of 1632
A supplier offers a $10,000 order at either net 30 or 2/10 net 30. Passing up the 2% discount to keep cash 20 extra days is roughly equivalent to paying an annualized interest rate of about:
a.12%
b.0%
c.37%
d.2%
Explanation
The discount is 2% for paying 20 days early. Annualized: (2/98) x (365/20) = 0.0204 x 18.25 = 0.372 = about 37%. Skipping early-payment discounts is expensive financing, so taking them usually pays.
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