You place an order for 440 units of inventory at a unit price of $105. The suppl

Question

You place an order for 440 units of inventory at a unit price of $105. The supplier offers terms of 1/10, net 90. a-1 How long do you have to pay before the account is overdue? Days until overdue days a-2 If you take the full period, how much should you remit? Remittance $ b-1 What is the discount being offered? Discount offered % b-2 How quickly must you pay to get the discount? Number of days days b-3 If you do take the discount, how much should you remit? Remittance $ c-1 If you don’t take the discount, how much interest are you paying implicitly? Implicit interest $ c-2 How many days’ credit are you receiving? Days' credit days

Explanation / Answer

A1)

Days until overdue = 90 days

A2)

Remittance = $46,200 (440×$105)

B1)

Discount offered = 1%

B2)

Number of days = 10 days

C1)

Implicit interest:

= (1+D÷(1-D))^(365÷n)-1

D is discount rate

n is Number of days after discount period

= (1+1%÷(1-1%))^(365÷80)-1

= 4.69%

C2)

I’m receiving 10 days credit with discount and 90 days credit without discount.

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