Answer (D) is correct . The annualized cost of not taking a discount can be calculated with the following formula: ? Cost of not taking discount?= [3% ÷ (100% – 3%)] × [360 days ÷ (90 days – 10 days)] ?= (3% ÷ 97%) × (360 days ÷ 80 days) ?= 3.09% × 4.5 ?= 13.905%
Answer (A) is incorrect because The rate of 12.0% results from failing to subtract the discount period and failing to divide the discount rate by (1.0 – discount rate).
Answer (B) is incorrect because The rate of 12.4% results from failing to subtract the discount period.
Answer (C) is incorrect because The rate of 13.5% results from failing to divide the discount rate by (1.0 – discount rate).
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