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The supplier of Stream plc has offered a credit terms of 3/15 net 40. Stream plc had purchased goods amounting $12,000 from this supplier 2 days earlier.
Stream plc is considering whether to take the advantage of cash discount with payment made on the last possible day. The opportunity cost of funds for Stream plc is 30%.
What is the net saving or cost at the normal time of payment of taking a cash discount?
a Net saving $123
b Net cost $32
c Net saving $121
d Net cost 114Answer – C
Could you please help me on this problem?
“3/15 net 40” is not an expression likely to be used in Paper F9 – where are you finding these questions?!
A 3% discount will save them $360.
The interest cost of paying 23 days early is 97% x 12,000 x 0.3 x 25/365 = $239
The net saving is 360 – 239 = 121.
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