If a firm buys on trade credit terms of 115 net 50 and decid

If a firm buys on trade credit terms of 1/15, net 50 and decides to forgo the trade credit discount and pay on the net day, what is the annualized cost of forgoing the discount (assuming a 360-day year)

Solution

If a firm buys on trade credit terms of 1/15, net 50 and decides to forgo the trade credit discount and pay on the net day,

   per day discount is 1/15 of 50=3.333

cost of forgoing the discount per year is:3.333*360=1200.