Percentage cost of the discount

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July 22, 2016 at 7:42 am #328314
letheu
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Dear Teacher,
When it ia said that percentage cost of the discount for early settlement discount is 44%. What does it mean? I dont know 44% compared to what.
Thanks for answering me
July 22, 2016 at 8:01 am #328319
John Moffat
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It depends on the whole contact of the question.

However normally it would mean the interest cost per annum of offering a discount. You would then compare this with the rate of overdraft interest in order to decide whether or not the discount was worth offering.

I cover all this in my free lectures on the management of receivables.

The lectures are a complete free course for Paper F9 and cover everything needed to be able to pass the exam well.
July 22, 2016 at 8:46 am #328327
letheu
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Sorry Teacher, what I meant was 44% of what?
July 22, 2016 at 9:21 am #328337
John Moffat
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It isn’t 44% of anything. It is an effective interest rate (and the lower the interest the better).

Again I do suggest that you watch the lectures.
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