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March 24, 2020 at 6:10 pm
Hi sir , in the example 4 , are we accepting the discount or not? i cant clearly understand in the lecture
John Moffat says
March 25, 2020 at 7:38 am
Example 4 does not ask whether or not we would accept the discount.
It only asks what the effective cost of refusing the discount is.
We would compare this with the overdraft interest to decide whether or not to take the discount, but the question does not state the overdraft interest rate which is why we are not asked for the decision.
February 25, 2020 at 2:26 pm
Sir in example 5 alternatively you have not discounted the 100000 as you have not considered the discount rate of 1.5%. Although it is not a significant difference but it doesn’t make sense as we would not have to 100000 and the total payable would be 98500.
February 25, 2020 at 3:46 pm
There is no discounting necessary. We are comparing the cost of not taking the discount with the overdraft interest in order to decide which is better.
November 9, 2019 at 2:02 pm
Hi Sir, I am confusing about calculate the payable and receivable.
In what situation we use the method of effective % cost ? (Such as example 1,4 & 5)
In what situation we use the method to calculate the cost and saving ? (Such as example 2 & 3)
November 9, 2019 at 6:41 pm
The method you use depends on what information is given in the question.
November 9, 2019 at 1:56 pm
Hi Sir, I don’t understand, why in example 4, you take the effective cost % is 43.86% you do not take the discount?
But why in example 5, you take the effective cost % is 24.69%, you take the discount?
August 16, 2019 at 7:58 pm
I have small question regarding example 5:
can you interpret the % of over draft in order to under stand more clearly the reason behind favoring the discount offer.
what did you mean by “the longer we delay we are saving overdraft interest” and “paying early will increase our overdraft” I just want you to explain to me how its work
August 17, 2019 at 10:17 am
When payment is made, the overdraft will increase. They have to pay interest on the amount of the overdraft, so the longer they delay paying then the longer it is before the overdraft increases and therefore the less interest they have to pay.
February 17, 2019 at 5:06 pm
Hello, can I ask for example 4 why do you calculate the effective cost of refusing discount with 2/98 instead of 2/100?
February 17, 2019 at 6:40 pm
But I explain this in the lecture!!!
For every $100 of the invoice, the discount is $2 and therefore they are paying $98 early. By delaying payment of the $98 (and therefore having to pay $100) it is costing them $2.
March 21, 2019 at 3:14 am
Further to John’s explanation above you need to remember the formula to annualise the discount. 1-(.02/.98)…. 2% being the discount factor, 98% being what you will eventually pay
March 21, 2019 at 4:37 am
Further to John’s explanation above you need to remember the formula to annualise the discount. 1+(.02/.98)…. 2% being the discount factor, 98% being what you will eventually pay raised to the power(365/n/52/n/12/n) n being the period saved
November 24, 2018 at 1:04 am
I didnt undersdant the finance cost when we took discount
November 24, 2018 at 8:48 am
You will have to say which bit you did not understand.
November 22, 2018 at 11:19 am
Why you don’t calculate average payables current and new? In new variant you will have less cash, so overdraft would be used only for this part of cash. Don’t you think that we should calcukate it?
November 22, 2018 at 11:22 am
Oh sorry, I think I found an answer myself))
October 23, 2018 at 10:27 pm
Hey sir! I have a little query regarding the calculation of period while calculating the annual effective rate of discount. How is a period of 14.6 practically possible ( if the days are 25 and it is suposed the number of days in a year is 365) .Cant we make the period as 15 instead of 14.6? Thank you
October 24, 2018 at 9:12 am
We are looking at averages and for an average 14.6 is the figure to use even though sometimes it might be 14 days and sometimes 15 days.
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