core: 0 of 1 pt Problem 15.LO3.26 (similar to) 9 of 9 (2 complete) HW Score: 3.7
ID: 2658127 • Letter: C
Question
core: 0 of 1 pt Problem 15.LO3.26 (similar to) 9 of 9 (2 complete) HW Score: 3.7%, 0.33 of 9 pts i Question Help * You start work at a new firm and leam that it's company policy to never take a trade discount. When you ask your boss about this, she says the firm needs the trade credit to avoid borrowing more money. You tell her it would be cheaper to borrow than to miss taking the discounts. She tells you to prove it. You learn that most of your suppliers offer terms of 2 / 15, net 30, Assume the firm's cost of borrowed funds is 10%, use a 365-day year. a. Compute the effective interest rate of the trade discount. b. Compute the annual percentage rate of the trade discount. c. Should the company take the trade discount? a. Compute the effective interest rate of the trade discount. The effective interest rate of the trade discount is % (Round to two decimal places.Explanation / Answer
Answer)
The trade discount of 2/15, net 30 explain receive a 2% discount for payment to a vendor within 15 days or pay the full amount (net) in 30 days.
a) Effective interest rate of trade discount = Discount %/(1-Discount %) x (365/(Full allowed payment days - Discount days))
discount= 2% = 0.02 ,
i= 0.02/(1-0.02) * (365/ (30-15)) = 49.66%
b) Annual interest rate (APR) = r *n , where n = number of period = 365/15 ,
APR = 2 *365/15 = 48.66667% = 48.67%
C)The trade discount effective rate as well as Annual interest rate are very much higher than the borrowed fund rate of 10%
So, company should take trade discount.
Answer ) In case of check issued and presented for clearing ,but not cleared yet
a) available balance : $ 10500
b) Book Balance:$ 10,500
c) Net float : Balance - marked money = $ 10,500 - $ 6000 = $ 4,500.
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