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What is the opportunity cost of not taking advantage

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Question - 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 60th 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: 2/20, n/60?

2. What is the opportunity cost of not taking advantage of the discount associated with purchases made under the following terms: 1/20, n/60?

3. To motivate managers to take early-payment discounts, what is the appropriate accounting treatment for purchase discounts?

Reference no: EM133107415

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