The Lemon Company made a credit sale of $15,000. The invoice was sent today with the terms,1/10 net 30. This customer normally pays at the net date. If your opportunity cost of funds is 10% the expected payment is worth how much today?

Question

Quizplus · Accepted Answer

The customer gets a 1% discount if they pay in 10 days instead of 30. Therefore, the expected payment is $15,000 - ($15,000 x 0.01) = $14,850. The present value of this payment is $14,850 ÷ (1 + 0.10/365)^20 = $14,883. Therefore, the best choice is A.

The Lemon Company Made a Credit Sale of $15,000