Homework Answers
a. If the company opts for cash discount of 2%, it has to pay within 15 days. The amount of payment is calculated as follows:
Cash discount = $15,000 X 2% = $300.
Therefore, amount to be paid = Purchase price - Cash discount = $15,000 - $300 = $14,700.
b. If company gives up discount, it would have to pay the full amount of $15,000 at any time after 15 days but within 40 days.
c. The cost of giving up discount assuming that the company pays on the 40th day is calulated as follows:
300/14700 X 365/25 X 100 = 29.80%.
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