If a company purchases merchandise on terms of 1/10, n/30, the cash discount available is equivalent to what effective annual rate of interest (assuming a 360-day year)? (LO 2)

The answer is:

18% ------------------------------------[360 days / (30 days ? 10 days)] 1% = 18% effective annual rate of interest.

Can you please breakdown how this is calculated ? The answer and equation are given, but I am not sure how and why it is set up this way.

(a) 1%

(b) 12%

(c) 18%

(d) 30%