Assume the credit terms offered to your firm by your suppliers are 3 2/6 Net 30 Calculate the cost of the trade credit if your firm does not take me discount and pays on day 30. In this instance, the customer will have me use of $96 80 for an additional 24 days (30-8) if he chooses not to take me discount. It will cost him $3. 20 to do to since he must pay $100 00 for the goods if he pays after me 6-day discount period Thus, mo interest rate per period is: Interest Rate per Period = Interest Paid/Amount Used Interest Rate per Period = $3.20/$96.80 = 3.31 % The number of 24-day periods in a year N=365/24 = 15 21 periods. So the effective annual cost of the trade credit is: EAR = (1 + r)^N - 1 EAR = (1 + 0.0331)^15.21 - 1 = 64.10%