Question

The expression "6/10, net 45" means that the customers receive a 6% discount if they pay within 10 days; otherwise, they must pay in full within 45 days.

What would the seller's cost of capital have to be in order for the discount to be cost justified?
A• 64.5714%
B• 58.5714%
C• 59.5714%
D• 62.5714%

Answer 1

D• 62.5714%

Step-by-step explanation:

The computation of the seller cost of capital for the discount is as follows

= Received discount by a customer × total number of days in a year ÷ number of days

= 6% × 365 days ÷ 35 days

= 6% × 10.42

= 62.5714%

The number of days is computed below:

= Net days - discount days

= 45 days - 10 days

= 35 days