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:

Variable Production Cost

Costs that vary directly with the level of production output, including raw materials, direct labor, and other expenses that increase with production volume.

Sales Price

Sales Price is the amount of money charged for a product or service in the market.

Net Operating Income

A financial metric that calculates a company's profit after subtracting operating expenses but before interest and taxes.

Line Chart

A type of chart which displays information as a series of data points called 'markers' connected by straight line segments.