A firm offers terms of 1.4/10, net 60. What effective annual interest rate does

Question

A firm offers terms of 1.4/10, net 60.

What effective annual interest rate does the firm earn when a customer does not take the discount? (Use 365 days a year. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

What effective annual interest rate does the firm earn if the terms are changed to 2.4/10, net 60, and the customer does not take the discount? (Use 365 days a year. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

What effective annual interest rate does the firm earn if the terms are changed to 1.4/10, net 75, and the customer does not take the discount? (Use 365 days a year. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

What effective annual interest rate does the firm earn if the terms are changed to 1.4/15, net 60, and the customer does not take the discount? (Use 365 days a year. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

A firm offers terms of 1.4/10, net 60.

Explanation / Answer

Calulation of effective interest rate is based on the following calculation:

Discount %/(1-Discount %) x (360/(Full allowed payment days - Discount days))

Here the customer does not take the discount in all four situations so annual interest rate the firm earn is ZERO in all the four situation

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