The Approximate Effective Cost (EC) of Financing the Discount Price

question 21

Multiple Choice

The approximate effective cost (EC) of financing the discount price of trade credit under terms 2/10, net/30 using a 360 day year is:

• A)25%
• B)30.1%
• C)36.737.2%
• D)42.5%

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Definitions:

One-Shot Approach

A method or strategy executed with a single attempt, without the prospect of repetition.

Monthly Interest Rate

The interest rate applied to a loan or debt for a one-month period, often used to calculate the monthly interest payments.

Variable Cost

A type of cost that varies with production volume, increasing as production increases and decreasing as production decreases.

Carrying Cost

Expenses incurred by holding inventory or assets over a period, including storage, insurance, and opportunity costs.