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In part b of this question we are asked to calculate if ZPS will benefit financially by accepting the offer of the early settlement discount.
In the suggested solution examiner compares the benefit of early settlement discount with the cost of paying sixty days earlier.When I answer this question I used formula for ‘Annual cost of discount=(1+discount/amount left to pay)no. of periods -1’
this gave me solution of 3.09% which is lower than cost of short-term borrowing of 4.5% and therefore should not be accepted.Would my answer be acceptable?
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