It is often the case that suppliers offer their customers to either pay the full amount of the invoice within a certain number of days, for example within 30 days, or receive a discount if they pay earlier, for example within 15 days. The first option would usually be referred to as Net 30. If, in the second option, the discount is 2 percent, the option would be referred to as 2/15, net 30.

Suppose that La Tierra Inc. has received an offer from one of its suppliers to pay invoices 1/30, net 60. What is the effective annual cost for La Tierra Inc. if it does not take on the offer? Assume a 365-day y