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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Receivables Question
Please can you help me understand this question. I’m pretty confused.
Company has sales of 200m /year. Currently customers take on average 40 days to pay. Company considering offering discount of 1% for payment within 15days and expects that 60% of customers will take advantage of discount.
What is the effective annual cost of offering the discount?
Thank you ever so much.
Tess
On every $100 invoiced, the discount is costing 1/99 (= 1.010101%) over a period of 25 days (40 – 15). To turn this into an annual effective rate (R), 1+R = (1.010101)^(365/25)