You place an order for 510 units of inventory at a unit price of $100. The suppl

ID: 2749220 • Letter: Y

Question

You place an order for 510 units of inventory at a unit price of $100. The supplier offers terms of 1/10, net 60.

How long do you have to pay before the account is overdue?

If you take the full period, how much should you remit?

What is the discount being offered?

How quickly must you pay to get the discount?

If you do take the discount, how much should you remit?

If you don’t take the discount, how much interest are you paying implicitly?

How many days’ credit are you receiving?

You place an order for 510 units of inventory at a unit price of $100. The supplier offers terms of 1/10, net 60.

A1)

Days until overdue = 60 days

A2)

Remittance = $51,000

B1)

Discount offered = 1%

B2)

Number of days = 10 days

C1)

Implicit interest:

= (1+D÷(1-D))^(365÷n)-1

D is discount rate

n is Number of days after discount period

= (1+1%÷(1-1%))^(365÷50)-1

= 7.61%

C2)

I’m receiving 10 days credit with discount and 50 days credit without discount.

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