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Dear John
Swap Co is due to receive goods costing $2500. The term of trade stat that payment must be received within three months. However, a discount of 1.5% will be given for payment within 1 month.
Which of the following is the annual percentage cost of ignoring the discount and paying in three months?A. 6.23%
B. 9.34%
C. 6.14%
D. 9.49%Thank you in advance.
Please do not simply set test questions and expect a full answer.
You must have an answer in the same book in which you found the question and you should ask about whatever it is in the answer that you are not clear about – then I will help you.The discount is for paying two months early. There are 6 periods of 2 months each in a year.
So the annual cost is (1.015^6) – 1 = 0.934 or 9.34%
(This is all explained in my free lectures on the management of receivables and payables)
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