Convert the discount rate into an annual interest rate

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Question - Bill Norman comes to you for advice. He has just purchased a large amount of inventory with the terms 2/10, n/30. The amount of the invoice is $310,000. He is currently short of cash but has decent credit. He can borrow the money needed to settle the account payable at an annual interest rate of 7 percent. Bill is sure he will have the necessary cash by the due date of the invoice but not by the last day of the discount period.

Required -

a. Convert the discount rate into an annual interest rate. (Use 365 days in a year. Do not round intermediate calculations.

b. Make a recommendation regarding whether Bill should borrow the money and pay off the account payable within the discount period.

Reference no: EM132549080

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