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Hi,
There isn’t a video to explain the below question and I’m a bit stuck with it! Could you help me with the methodology please?
Example 5 – Annual interest
Dory’s customers all pay their accounts at the end of 60 days. To try and improve its cash flow, Dory is considering offering all customers a 1.5% discount for payment within 14 days. Assume overdraft interest is 15%.
Calculate the implied annual (interest) cost to Dory of offering the discount, using compound interest methodology and assuming a 365 day year and an invoice value of $500.Hi,
Is there not an answer in the back of the class notes? Have a look and if you’re still stuck then please just shout.
Thanks
There is an answer but I don’t follow it!
Why do we assume an invoice value of £500? Is this irrelevant information or is it used in the calculation?
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