A company should borrow funds at a rate of 10% to take advantage of credit terms offered to them of 1/10 net 30 if the company normally does not pay until the 30^th day.

Question

Quizplus · Accepted Answer

The cost of not taking the discount is higher than the borrowing rate. The effective annual interest rate of not taking the discount is approximately 18.2%, which is higher than the 10% borrowing rate.

A Company Should Borrow Funds at a Rate of 10