A supplier offers you credit terms of 1/5,net 20.What is the cost of forgoing the discount on a purchase of $1,250? Assume a 365-day year.

Name: A supplier offers you credit terms of 1/5,net 20.What is the cost of forgoing the discount on a purchase of $1,250? Assume a 365-day year.
Brand: Quizplus
Rating: 4.9 (55 reviews)

Question

Quizplus · Accepted Answer

Discount = 0.01 × $1,250 = $12.50 Loan amount = $1,250 - $12.50 = $1,237.50 Loan term = 20 - 5 = 15 days EAR = [1 + ($12.50 / $1,237.50)]³⁶⁵^/10 - 1 = 0.4432,or 44.32%

A Supplier Offers You Credit Terms of 1/5,net 20