Your firm purchases goods from its supplier with a discount of 2%,and a discount period of 10 days.If the effective annual cost of forgoing the discount is 44.59%,what is the length of the credit period?

Question

Quizplus · Accepted Answer

To solve the problem, we first need to calculate the cost of forgoing the discount. The effective annual cost is given by:

(1 + Discount / (1 - Discount))^(365 / Discount Period) - 1 = 0.4459

Substituting the values given in the problem, we get:

(1 + 0.02 / (1 - 0.02))^36.5 - 1 = 0.4459
1.3716^36.5 - 1 = 0.4459
42.75 - 1 = 0.4459
41.75 = 0.4459
Discount Period = 30 days (nearest integer value)

Therefore, the answer is choice C, 30 days.

Your Firm Purchases Goods from Its Supplier with a Discount