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Dundy Co is due to sell goods to Carlos Co costing $15,000. The terms of trade state that the payment must be received in 120 days. However, a discount of 2% will be given for payment in 30 days.
2/98=0.024
1.024^ (360/90)-1=8
there is an option of 8 but the answer is 8.16
The discount represents 2% of $15,000 = $300
So they will pay $15,000 – $300 = $14,700
This represents a 90 day discount of $300 / $14,700 = 2.04%
Annualised will be 2.04% x 360 days /90 days = 8.16%
how did they get 8.16?
thanks
The discount represents 2% of $15,000, which is $300.
So, the amount to be paid after the discount is $15,000 – $300 = $14,700.
This discount is for a period of 90 days.
To calculate the annualised cost, we divide the discount percentage (2.04%) by the number of days the discount is applicable (90 days) and multiply it by the number of days in a year (360 days).
Therefore, the annualised cost is 2.04% x (360 days / 90 days) = 8.16%.
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