Question

Compute the cost of not taking the following cash discounts. (Use a 360-day year. Do not round intermediate calculations. Input your final answers as a percent rounded to 2 decimal places.)  

a. 2/11, net 50 = %

b. 2/17, net 50 = %

c. 4/15, net 50 = %

d. 4/19, net 155 = %

Answer 1

a.the cost of credit formula is ;

the supplier will provide a cash discount if the dues are cleared in 11 days instead of 50 days.

if the customer does not take the discount, he has to be the cost of credit which is calculated as follows :

2% / (100% -2 %)* 360/ 39

=0.0204 * 9.2307

=18.83% cost of credit.

b. 2%/98% * 360/ 33

= 0.0204 * 10.909

=22.25% is the cost of credit.

c. 4%/100%-4% * 360/35

=0.04/0.96 * 10.2842.83 cost of credit.

d. 4%/100% - 4% * 360/136

=0.0416 * 2.647

= 11.01 cost of credit