The opportunity cost of not taking advantage of the discount

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Reference no: EM132034862

It is typically beneficial for companies to take advantage of early-payment discounts allowed on purchases made on credit.

To see why this is the case, determine the effective rate of interest associated with not taking advantage of the early-payment discount for each of the following situations.

Assume in each case that payment is made on the 30th day of the billing cycle.

Required:

1. What is the opportunity cost of not taking advantage of the discount associated with purchases made under the following terms: 3.9/10, n/30?

(Do not round intermediate calculations. Enter your final answer as a whole percentage rounded to two decimal places (i.e., .1524 = 15.24%).)

2. What is the opportunity cost of not taking advantage of the discount associated with purchases made under the following terms: 2.9/10, n/30?

(Do not round intermediate calculations. Enter your final answer as a whole percentage rounded to two decimal places (i.e., .1524 = 15.24%).)

Reference no: EM132034862

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