Final answer:
The APR benefit is a 1% discount with credit terms of 1/14, net 30 if paid within 14 days. The calculation of EAR from such a discount is complex, requiring an understanding of compounding interest and financial calculations.
Step-by-step explanation:
The APR benefit of paying credit terms of 1/14, net 30 early is that the customer can take a 1% discount if the payment is made within 14 days instead of the full 30 days. This is an incentive for early payment. To calculate the effective annual rate (EAR) from this discount, we'll assume the remaining balance would be paid off after the discount period To calculate the EAR, we use the formula for EAR = (1 + i/n)^n - 1, where i is the interest rate and n is the number of compounding periods per year. With a 1% discount for paying 16 days early (30-14=16), we essentially have an interest period of 16 days. The EAR would effectively be the result of compounding this benefit over the course of a year.
Assuming there are 365 days in a year, the number of compounding periods would be 365/16. The EAR can be found by plugging the discount rate as the interest over these compounding periods. However, this calculation is more complex than a simple APR as it involves understanding discounted cash flow and the time value of money.Directly estimating the EAR from such a short-term discount involves complex financial calculations, which typically require a financial calculator or spreadsheet software to accurately compute.