Dan Moran is a new accountant with Tabor Company. Tabor purchased merchandise on account for $9,000. The credit terms are 1/10, n/30. Dan has talked with the company's banker and knows that he could earn 6% on any money invested in the company's savings account.
Instructions
(a) Should Dan pay the invoice within the discount period or should he keep the $9,000 in the savings account and pay at the end of the credit period? Support your recommendation with a calculation showing which action would be best.
(b) If Dan forgoes the discount, it may be viewed as paying an interest rate of 1% for the use of $9,000 for 20 days. Calculate the annual rate of interest that this is equivalent to.

Question

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The Answer of Dan Moran is a new accountant with Tabor Company. Tabor purchased merchandise on account for $9,000. The credit terms are 1/10, n/30. Dan has talked with the company's banker and knows that he could earn 6% on any money invested in the company's savings account.
Instructions
(a) Should Dan pay the invoice within the discount period or should he keep the $9,000 in the savings account and pay at the end of the credit period? Support your recommendation with a calculation showing which action would be best.
(b) If Dan forgoes the discount, it may be viewed as paying an interest rate of 1% for the use of $9,000 for 20 days. Calculate the annual rate of interest that this is equivalent to.

Dan Moran Is a New Accountant with Tabor Company