A Firm Is Offered Trade Credit Terms of 2/8, Net

question 114

Multiple Choice

A firm is offered trade credit terms of 2/8, net 45 days. The firm does not take the discount, and it pays after 58 days. What is the effective annual cost of not taking this discount? (Assume a 365-day year.)

• A) 21.63%
• B) 13.35%
• C) 14.90%
• D) 15.89%
• E) 18.70%

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Definitions:

Marginal Social Cost

The additional cost imposed on society as a whole by producing one extra unit of a good or service.

Nonrival

A good or service that can be consumed by one individual without preventing the consumption of the good by another individual.

Nonexcludable

A characteristic of a public good, indicating that it is not feasible to prevent non-paying customers from consuming the good.

Excludable

An excludable good is one from which it is possible to prevent people from benefiting unless they have paid for it.