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Hi, can somebody tell me what is the formula of effective % cost of discount?
I got this question from OPEN TUITION worksheet on simple settlement discount :
Customers currently take 3 months credit. We are considering offering a discount of 4% for payment within one month. Sales are $12,000,000 p.a. We are paying over draft interest of 20% p.a.Calculate the effective % cost p.a. of the discount. Should we offer the discount?
the answer there is 27.75% and not to offer the discount since it is more than 20%. I dont understand how to apply the formula to get to 27.75%. If anyone can help, I will be most grateful.Thanks.
This is fully explained in our free lectures on the management of receivables.
(There is no point at all in using our materials if you are not watching our free lectures! If you are not watching the lectures for any reason then you should buy a Study Text from one of the ACCA approved publishers and study from there.)
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