Answer: The cost of non-free trade credit is 23.45%
We follow these steps to arrive at the answer
We have:
Discount Rate 2%
First we find [tex]\frac{Discount Rate}{1 - Discount Rate}[/tex].
[tex]\frac{Discount Rate}{1 - Discount Rate} = \frac{0.02}{1 - 0.02}[/tex]
[tex]\frac{Discount Rate}{1 - Discount Rate} = \frac{0.02}{0.98} = 0.020408163[/tex]
Adding 1 to the number above we get 1.020408163
Next we'll find the number of extra credit days after the discount period.
[tex]Extra credit days = Total credit days - Discount period[/tex]
[tex]Extra credit days = 50 - 15 = 35 days[/tex]
Next we need to raise 1.020408163 to the fraction of 365/35. We get
[tex]1.020408163^{ 365/35} = 1.234523883[/tex]
Finally we need to deduct 1 from the number above to get [tex]1.234523883 -1 = 0.234523883[/tex]
We express the number above as a percentage to arrive at the cost of non-free trade credit.
Answer:
0.2345 or 23.45%
Explanation:
Do the following :
Effective Annual Percentage Cost =[1 +(Discount percentage /100 – discount percentage )]^ 365/(actual days -discount period ),and then subtract 1.
Though,
EAPC =[1+(2/98 )]^ (365/50-15 ) -1 = 1.0204 ^ 10.43 -1= 1.2345 -1= 0.2345 or 23.45%
