Early Settlement Discounts and Weak form efficiency

1. The examiner certainly does take the additional admin costs into account in his answer. They are listed under 'costs' in the answer. 2. Correct.

Thank you sir. That's what I thought, but the solution includes the cost of the discount itself only, but does not include the admin cost increase, which is stated in the scenario. 'What would be the annual cost of the early settlement discount if offered by ZXC Co?' Would you suggest that we include the annual cost in an objective test question then, even though in this one they did not? Sorry, sir, another question. In another past question, from my question bank - the business is offered a bulk buying discount, which will triple its order size and the business accepts. The solution says that the cash operating cycle would be unchanged as the increase in inventory value, would increase inventory days, but this is then offset by an equal and opposite increase in payables and paybables days. Would this therefore also mean that the current ratio would be unchanged because net current assets would be unaltered because of the proportionate increase in the current assets and current liabilities? Thank you.

But the answer does include the additional admin costs!!!! Are you looking at the examiners answer? Under the heading 'Costs' it has the following: Increase in administration costs 35,000 Cost of discount 108,000 Total costs 143,000 We always include any additional admin costs. With regard to your second question, yes - the current ratio will be unchanged.

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