I need help solving (a)-(d) for the problem posted below: (Cost of trade credit)
ID: 2656215 • Letter: I
Question
I need help solving (a)-(d) for the problem posted below:
(Cost of trade credit) Calculate the effective cost of the following trade credit terms when payment is made on the net due date. Use approximate cost-of-credit formula. Note: Assume a 30-day month and 360-day year a. 3/5, net 30 b. 2/10, net 45 ?. 3/10, net 75 d. 2/15, net 48 a. When payment is made on the net due date, the APR of the credit terms of 35, net 30 is b, when payment is made on the net due date, the APR of the credit terms of 2/10, net 45 is [ c. When payment is made on the net due date, the APR of the credit terms of 3/10, net 75 is d. When payment is made on the net due date, the APR of the credit terms of 2/15, net 45 is (Round to two decimal places.) (Round to two decimal places.) D% (Round to two decimal places ) [0%. (Round to two decimal places.) %. %.Explanation / Answer
(a) 3/5, net 30
APR of the credit terms = [Discount%/(100 - Discount%)] x 360/(Allowed payment days - Discount days)
= [3/(100 - 3)] x 360/(30 - 5)
= 3/97 x 360/25
= 0.0309 x 14.4
= 0.4450
= 44.50%
(b) 2/10, net 45
APR of the credit terms = [Discount%/(100 - Discount%)] x 360/(Allowed payment days - Discount days)
= [2/(100 - 2)] x 360/(45 - 10)
= 2/98 x 360/35
= 0.0204 x 10.2857
= 0.21
= 21%
(c) 3/10, net 75
APR of the credit terms = [Discount%/(100 - Discount%)] x 360/(Allowed payment days - Discount days)
= [3/(100 - 3)] x 360/(75 - 10)
= 3/97 x 360/65
= 0.0309 x 5.5385
= 0.1711
= 17.11%
(d) 2/15, net 45
APR of the credit terms = [Discount%/(100 - Discount%)] x 360/(Allowed payment days - Discount days)
= [2/(100 - 2)] x 360/(45 - 15)
= 2/98 x 360/30
= 0.0204 x 12
= 0.2448
= 24.49%
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