Homework Answers
Option 'A' is correct, 52.1429%
Concept of opportunity cost can be used to solve this problem. Opportunity cost is the lost gains for the next best alternative choosen. So, here what is the gain he is making in paying within 10days.
45-10 extra days he will get to pay the full money if he opts to skip the discount, i.e, 35 days.
5% discount if he pays within 10 days.
So , seller's cost of capital : (0.05/35)*365 = 0.521429 = 52.1429%(Ans)
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