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    Annual cost of not taking the discount

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    A company can have trade credit terms of 4/8, net 55 days. However, the company decides that it won't take the discount, and it pays after 69 days. What is the effective annual cost of deciding to not take this discount? (365 days per year.)

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    Solution Preview

    The annual cost is calculated as per the following formula

    Annual Cost = (% discount)/(100-%discount) X (365/(Payment Days-Discount Period)

    Here the terms are 4/8 net 55 days. This means that if you pay in 8 days ...

    Solution Summary

    The solution explains how to calculate the annual cost of not taking the trade discount.