Homework Answers
(a)
2/10 net 30 means that take 2% discount if paid in 10 days, otherwise pay in 30 days
Effective interest rate = Discount %/(1-Discount %) x (360/(Full allowed payment days - Discount days))
= (0.02/(1-0.02)) * (360/(30 - 10))
= 0.3673 or 36.73%
(b)
Annual Sales = D = 80000/year
Ordering Cost = Co = $100
Carrying Cost = Cc = $2/year
Economic Order Quantity Q* = √(2DCo/Cc) = √(2*80000*100/2) = 2828.43
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