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Discount Credit Terms - Effective Annual Rate

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Your company has been offered credit terms on its purchases of 3/15, net 30 days. If you do not take the discount and pay after 50 days what is your company's effective annual cost (EFF%) of not taking the discount? What would be the effective annual cost if your company paid after 30 days? (Assume a 360-day year)

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Solution Summary

This solution contains calculations to aid you in understanding the effective annual rate.

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Part a)
The effective time for credit = 50-15=35 days
Amount payable if ...

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