Al Watan sells its goods with terms of 3/15, net 60. What is the cost of the trade credit? (Hint: Assume BD 100 sales and 365 days)

Given

3/15, net 60 that means if you pay amount in 15 days, you will get a discount of 3% or you can pay the full payment in 60 days.

Here Discount factor (d) = 3%

Normal days = Normal credit period = 60 days

Discount days = 15 days

Cost of trade credit = {[(1+d)/(1-d)]^[365/(Normal days-Discount days)]} - 1

= {[(1+0.03)/(1-0.03)]^[365/(60-15)]} - 1

= {[1,06186]^[8.1111]} - 1

= 1.6271 - 1

= 0.6271 or 62.71%

Therefore Cost of Trade Credit = 62.71%