Copyright

Your firm purchases goods from its supplier on terms of 1.3 / 15, net 40 ( a.) What is the...

Question:

Your firm purchases goods from its supplier on terms of 1.3 / 15, net 40

( a.) What is the effective annual cost to your firm if it chooses not to take the discount and makes its payment on day 40? The effective annual cost is...... %. (Round to two decimal places.)

( b.) What is the effective annual cost to your firm if it chooses not to take the discount and makes its payment on day 50? The effective annual cost is........... %. (Round to two decimal places.)

Trade Credit:

Generally, suppliers offer credit for a period to the buyers as per their credit policy and may offer discounts for early payments. Trade credit is expressed in terms of credit policy like 2/15, net 55 or 4/10, net 30 etc. Here the credit terms 1.3/15, net 40 means that the amount is due in 40 days but the customer can avail 1.3% cash discount on the invoice value if he pays within 15 days.

Answer and Explanation:

Effective annual rate of interest = (Discount/(1- discount))*(365/(Payment day - Discount days))


A. The effective annual cost to your firm if it...

See full answer below.

Become a Study.com member to unlock this answer! Create your account

View this answer

Learn more about this topic:

Credit Terms: Due Date, Invoice Date & EOM

from Business 110: Business Math

Chapter 7 / Lesson 2
9.2K

Related to this Question

Explore our homework questions and answer library