Your firm purchases goods from its supplier with a discount period of 10 days,and a credit period of 30 days.If the effective annual cost of forgoing the discount is 44.59%,what is the amount of the discount?

Question

Quizplus · Accepted Answer

The effective annual cost (EAC) of forgoing a discount can be calculated using the formula: EAC = [(1 + (discount / (1 - discount)))^(365 / (credit period - discount period))] - 1. Given an EAC of 44.59%, a discount period of 10 days, and a credit period of 30 days, we can solve for the discount rate. The formula rearranges to solve for the discount rate given the EAC. The correct discount rate that corresponds to an EAC of 44.59% with the given periods is 2%.

Your Firm Purchases Goods from Its Supplier with a Discount