Jasper Inc.has credit terms of 2/10 net 60.Customers should take the discount and pay in 10 days if they CANNOT earn more than ________ (APR)or ________ (EAR)on their investments.
A)14.90% APR or 15.89% EAR
B)15.89% APR or 14.90% EAR
C)12.42% APR or 13.08% EAR
D)13.08% APR or 12.42% EAR

Question

Quizplus · Accepted Answer

To find the minimum rate of return customers should earn on their investments, we can use the following formula:

Discount %/(100% - Discount %) x (365/Payment days - Discount days)

Plugging in the numbers from Jasper Inc's credit terms, we get:

2%/98% x (365/60 - 10) = 14.90% APR or 15.89% EAR (depending on compounding)

Therefore, customers should take the discount and pay in 10 days if they cannot earn more than 14.90% APR or 15.89% EAR on their investments. Choice A is the only option that includes these rates.