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This topic has 1 reply, 2 voices, and was last updated 10 years ago by John Moffat.

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June 3, 2015 at 1:14 pm #252455
olaniyi
Member
- Topics: 10
- Replies: 20
Hi John,
Kindly assist please. I keep getting wrong answer.
A company has sales of $200M per annum. Currently customers take on average 40 days to pay. The company is considering offering a discount of 1% for payment within 15 days and expect that 60% of the customers will take advantage of the discount. What is the effective annual cost of offering the discount.
GIVEN ANSWER IS 15.80%
June 3, 2015 at 3:26 pm #252497
John Moffat
Keymaster
- Topics: 57
- Replies: 54748
The cost of the discount is 1/99 = 1.0101% over a period of 25 days (40 – 15)
If R is the annual cost, then 1+R = (1 + 0.01010) ^ (365/25) = 1.1580
So R = 0.1580 (or 15.80%)
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