Accounting HW?

Question

What is the cost of foregoing the discount (APR) when terms are 1/10 net 40 and payment is on the 40th?

a. 9.22%
b. 12%
c. 12.17%
d. 12.29%
e. 12.31%

thanks!

Answer 1

correct answer should be b)

apr = (1% * 360 days) / (40 days - 10 days)
apr = 0.12 = 12%

Actual time of payment doesn't matter to find out the annual rate of interest as long as you do know that discount may be taken when payment is done before 10 days and that payment has to be done no later than 40 days after receipt of the invoice.