PROBLEM #3-Cash Discounts We purchased $340,000 worth of merchandise from T. Yan

Question

PROBLEM #3-Cash Discounts We purchased $340,000 worth of merchandise from T. Yang. Their terms are 3/10;n/60. A) What is the approximate annual rate of interest? B) How much would we need to pay T. Yang if we pay within 10 days? C) If we borrow the money from the bank (who charges 8%), how much would we save by al borrowing the money to get the cash discount? Assume that we will borrow the money at the last possible moment and that we will wait until the end of the 60 day period to pay back the loan. D) We send T. Yang a check for $180,000 during the discount period. He allows discounts on partial payments. How much should be deducted from what we owe?

Explanation / Answer

Part 1

Part 2

We will need to pay $ 340000 - $ 10200 = $ 329800

Part 3

Interest on Bank = $ 340000 x 8% x 50/365 = $ 3726

Savings would be thus $ 10200 - $ 3726

Part 4

$ 180000 x 3% = $ 5400 would be deducted from what owed

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