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ABC Co offers an early settlement discount of 2% to its customers if they pay cash instead of taking 60 days’ credit
what is the annualised % cost of this discount to ABC?
A 12%
B 13%
C 6%
D 18%sir I have done like this
assume invoice 100$
without discount – 60days –> $100
with discount –> immediately today –> $982/98 * 365/60 = 12.4%
but BPP is giving answer 13%
and does it like this (100/100-2) ^ 365/60 – 1 = 13%clear me John
The BPP approach is strictly more correct.
(In the past it has only been asked twice as a tiny part of a question, and both times the examiner said that he would accept the ‘simple’ approach. Now, with the introduction of MCQ’s it is more important to do it the ‘strict’ way, and I must change the lecture.)
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