Your Supplier Grants You Credit Terms of 2/10, Net 40

question 381

Multiple Choice

Your supplier grants you credit terms of 2/10, net 40. What is the effective annual rate of not taking the discount if you purchase $2,500 worth of merchandise?

• A) 14.9 percent
• B) 17.8 percent
• C) 21.9 percent
• D) 27.9 percent
• E) 31.0 percent

---

Definitions:

Sunk Cost

Costs that have already been incurred and cannot be recovered or changed.

Alternative

An option or choice among several available in a given situation, often considered when making decisions.

Relevant Range

The span of activity or volume over which the specific assumptions of cost behavior hold true, often considered in budgeting and decision-making.

Mixed Costs

Expenses that contain both fixed and variable components, changing in total with the level of activity but not directly proportional.