Question

compute the cost of not taking the following trade discounts: (use 365 days in a year. round the final answers to 2 decimal places.) a. 1/10, net 20 cost of lost discount % b. 2/15, net 30 cost of lost discount % c. 2/10, net 45 cost of lost discount % d. 3/10, net 180 cost of lost discount

Answer 1

a. The cost of not taking the 1/10, net 20 trade discount is 36.50%.

b. The cost of not taking the 2/15, net 30 trade discount is 73.97%.

c. The cost of not taking the 2/10, net 45 trade discount is 73.50%.

d. The cost of not taking the 3/10, net 180 trade discount is 109.50%.

Step-by-step explanation:

To calculate the cost of not taking trade discounts, you need to determine the equivalent interest rate for the period from the end of the discount period to the net payment period. The formula for the cost of not taking a trade discount is:

`\[ \text{Cost of Lost Discount \%} = \frac{\text{Discount \%}}{1 - \text{Discount \%}} * \left(\frac{365}{\text{Net Payment Period} - \text{Discount Period}}\right) \]`

a. For the 1/10, net 20 trade discount:

`\[ \text{Cost of Lost Discount \%} = (1\%)/(1 - 0.01) * \left((365)/(20 - 10)\right) = 36.50\% \]`

b. For the 2/15, net 30 trade discount:

`\[ \text{Cost of Lost Discount \%} = (2\%)/(1 - 0.02) * \left((365)/(30 - 15)\right) = 73.97\% \]`

c. For the 2/10, net 45 trade discount:

`\[ \text{Cost of Lost Discount \%} = (2\%)/(1 - 0.02) * \left((365)/(45 - 10)\right) = 73.50\% \]`

d. For the 3/10, net 180 trade discount:

`\[ \text{Cost of Lost Discount \%} = (3\%)/(1 - 0.03) * \left((365)/(180 - 10)\right) = 109.50\% \]`

These calculations provide the percentage cost incurred by not taking advantage of the offered trade discounts, helping businesses evaluate the financial impact of delayed payments.