You place an order for 680 units of Good M at a unit price of $46. The supplier offers terms of 1/5, net 20. If you don't take the discount, how much interest are you paying implicitly?

Question

Quizplus · Accepted Answer

The interest paid implicitly is the difference between the amount paid without the discount and the amount paid with the discount. The discount is 1/5, which means that if you pay within 5 days, you can deduct 1/5 of the invoice price. The invoice price is 680 * $46 = $31,280. The discount is $31,280 * 1/5 = $6,256. The amount paid without the discount is $31,280. The amount paid with the discount is $31,280 - $6,256 = $25,024. The interest paid implicitly is $31,280 - $25,024 = $6,256.

You Place an Order for 680 Units of Good M