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Compute the simple annual effective cost of paying

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Question - ABC has a major supplier that offers a credit term of 2/15, n/45. Cash not yet used for payments are generally kept in an account that earns ABC 2.5% per year. Use 360 days in a year.

1. Compute the Simple annual effective cost of paying on 45th day instead of the 15th day.

2. Compute the Compounded annual effective cost of paying on 45th day instead of the 15th day.

3. Should ABC pay on the 15th day or 45th day?

Reference no: EM133124002

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