Annual benefit /cost calculation

In the simple interest approach, you can calculate the annual cost or benefit by multiplying the discount rate by the number of periods in a year.
For example, if the discount rate is 1% and there are 12 periods in a year, the annual cost or benefit would be 12% (12 x 1%).

In the compound interest approach, you would use the discount factor formula to calculate the annual cost or benefit.
The discount factor is “best” calculated by raising the discount rate to the power of the number of periods in a year.
For example, if the discount rate is 1% and there are 12 periods in a year, the discount factor would be (1 + 0.01)^(1/12) – 1.
You can then convert the discount factor to a percentage to get the annual cost or benefit.

It’s important to carefully read the question and understand what is being asked.
In order to determine which formula to use.

If you’re unsure, and it’s a section C write down any assumption you have made.

Read the question carefully – perhaps look for any specific instructions or indications regarding the type of interest to be used. The question may explicitly state whether simple or compound interest should be applied – in the requirement!

Consider the time period – simple interest is typically used for shorter time periods, such as a few months or a year. Compound interest is more commonly used for longer time periods, such as multiple years or decades.

Understand the scenario – Co who makes regular deposits or withdrawals, or if interest is being earned on interest already earned, compound interest is likely to be the appropriate choice. If the problem involves a straightforward calculation of interest on a fixed principal amount, simple interest may be more suitable.

Pay attention to the wording – look for keywords or phrases that may indicate the type of interest to be used. For example, if the question mentions “compounding” or “accumulated interest,” it suggests the use of compound interest.

The word “effective” can be an indicator of choosing the compound rate. In finance, the term “effective” is often used to refer to the actual or true cost or rate of a financial transaction, taking into account compounding or other factors.

When calculating the effective cost or rate, it is important to consider the compounding effect, which means that interest or costs are added to the principal amount and then earn interest or incur costs themselves. Therefore, when you come across the term “effective” in a financial context, it is likely that the compound rate should be used to calculate the true cost or rate.

So simple means simple……………….

I am not sure of what you are asking me with receivables and payables
Rec days = Rec / sales * 365
Pay = Pay / Pur or COS * 365

The calculation of receivables and payables periods can vary depending on the specific circumstances of a business, therefore the question that you are being asked etc……..
In general, longer periods for receivables and payables may indicate a slower cash conversion cycle and potentially a higher working capital requirement.
However, it is important to consider the specific industry, business model, and market conditions when determining the appropriate periods for receivables and payables.

https://opentuition.com/acca/fm/currency-futures-options-acca-financial-management-fm/

Your most welcome