Question

A firm offers credit terms of 3/15, net 20 to its customers, which means the firm allows its customers to take a 3 percent discount on the invoice price if payment is made on or before day 15 of the billing cycle; otherwise, the entire bill is due by day 20.

a) 20 percent discount on the invoice price if payment is made on or before day 3 of the billing cycle; otherwise, the entire bill is due by day 15.
b) 20 percent discount on the invoice price if payment is made on or before day 15 of the billing cycle; after that, only a 3 percent discount will be available.
c) 15 percent discount on the invoice price if payment is made on or before day 3 of the billing cycle; otherwise, the entire bill is due by day 20.
d) 15 percent discount on the invoice price if payment is made on or before day 20 of the billing cycle; after that, only a 3 percent discount will be available.

Answer 1

The firm's credit terms are 3/15, net a. 20, which means a 3 percent discount is available if payment is made within 15 days; otherwise, the full amount is due by day 20.

Step-by-step explanation:

The credit terms offered by the firm are 3/15, net 20, which means the firm allows a 3 percent discount on the invoice price if the payment is made on or before day 15 of the billing cycle; if not, the entire bill is due by day 20. None of the other options provided (a, b, c, d) accurately reflect these terms. In business, credit terms such as these are important to understand as they directly impact cash flow and the cost of trade credit. Understanding these terms is also essential when evaluating the true cost of purchasing on credit and the benefits of early payment discounts.

Regarding the future value of payments, these are calculated based on the present value and future payments considering the interest rate. To calculate the future value of payments, you use the (1 + Interest rate) raised to the power of the number of years t. To find the total present value, you sum all the present values of future payments at the given interest rate. When considering taking a mortgage, the terms generally span over 15 to 30 years, and understanding the impact of different down payments and interest rates on the total cost of the mortgage is crucial.

Some buyers may opt for a lower down payment with the consequences of higher costs over time due to mortgage insurance. This additional cost protects the lender but increases the total mortgage payment for the borrower.