Question

Pillmore Supply is negotiating with Mountain Home Clinic to be their primary pharmaceutical supplier. The contract terms they are offering is a 3% discount if the bill is paid in 1 day, otherwise the full balance of the invoice is within 15 days. What is the approximate annual rate of that discount? Answer ____

Answer 1

The approximate annual rate of the discount offered by Pillmore Supply is approximately 195.54%.

Step-by-step explanation:

To calculate the approximate annual rate of the discount offered by Pillmore Supply, we need to consider the length of the payment terms and the size of the discount. In this case, Pillmore Supply is offering a 3% discount if the bill is paid in 1 day, otherwise the full balance is due within 15 days. Assuming a 365-day year, we can calculate the approximate annual rate of the discount using the formula:

Annual Discount Rate = (Discount / (1 - Discount)) * (365 / (Payment Terms - Discount Days))

Here, the Discount is 3% (or 0.03), the Payment Terms is 15 days, and the Discount Days is 1 day. Plugging in these values, we get:

1. 
   
3. Annual Discount Rate = (0.03 / (1 - 0.03)) * (365 / (15 - 1))
4. 
   
6. Annual Discount Rate = (0.03 / 0.97) * (365 / 14)
7. 
   
9. Annual Discount Rate ≈ 0.075 * 26.071
10. 
    
12. Annual Discount Rate ≈ 1.9554 or 195.54%

Therefore, the approximate annual rate of the discount offered by Pillmore Supply is approximately 195.54%.