You bought 50,000 of supplies today on credit term of 2/10 net 60. What is the effective cost of the purchasing credit that you received? (using days 360) Can anyone help explain the working to this question?
There are only two days on which it makes sense to pay: day 10 and day 60 (50 days later).
If you pay on day 10, you’ll pay 49,000 (= 50,000 × (1 − 2%)). If you pay on day 60, you’ll pay 50,000. So the effective interest rate satisfies:
49,000\left(1 + r\right)^{50/360} = 50,000
\left(1 + r\right)^{50/360} = \frac{50,000}{49,000} = 1.020408163
1 + r = 1.020408163^{360/50} = 1.156571
r = 0.156571 = 15.6571\%