mcq f9 revision test

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May 14, 2015 at 7:12 pm #246001
Salauddin
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Dear Sir,
Can you please show me the calculation of following question.

Company sales $200 M per year.Customers taking 40 days to pay.
Offered 1% discount to pay within 15 days. Expects 60% customers will
take this advantage .

What is the effective annual cost of discount?
May 15, 2015 at 8:40 am #246067
John Moffat
Keymaster
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The discount is 1/99 = 1.010101% over a period of 25 days (40 – 15).

To turn it into an annual rate, the annual rate is ((1.010101)^(365/25)) – 1) = 0.1580 (or 15.80%)
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