Answer (B) is correct . The annualized cost of not taking a discount can be calculated with the following formula: ? Cost of not taking discount?= [2% ÷ (100% – 2%)] × [360 days ÷ (50 days – 10 days)] ?= (2% ÷ 98%) × (360 days ÷ 40 days) ?= 2.04% × 9 ?= 18.36%
Answer (A) is incorrect because The rate of 18.0% results from failing to divide the discount rate by (1.0 – discount rate).
Answer (C) is incorrect because The rate of 21.0% results from using the agreed-to discount period rather than the self-extended discount period.
Answer (D) is incorrect because The rate of 24.5% results from using a 30-day discount period.
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