Lima Corporation Makes Purchases on Credit with Terms of 2/15

question 17

Multiple Choice

Lima Corporation makes purchases on credit with terms of 2/15, net 45. What is the effective annual rate (rEAR) of non-free trade credit if Lima does not take discounts and pays on Day 45? In your computations, assume there are 360 days in a year. 

• A)42.98%
• B)24.49%
• C)148.21%
• D)35.40%
• E)27.43%

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Definitions:

Double-Edged Effect

A situation or strategy that has both positive and negative outcomes or implications.

Overconfidence

A cognitive bias where a person's subjective confidence in their judgments is greater than the objective accuracy of those judgments.

Fundamental Attribution Error

The fundamental attribution error is the tendency to overemphasize personal characteristics and underestimate situational influences when explaining someone else's behavior.

Irrational Escalation

The phenomenon where individuals continue or intensify an action or investment beyond a rational point, often due to emotional commitment or previous investments.