CHAPTER 8

Answer 1:
Cost of not taking a financial discount:
360

Discount percent

100 percent Discount percent

Final

due date Discount period

a) 2/10, net 50
Discount percent: 2%
Final due date: 50
Discount Period: 10
Cost of not taking a financial discount:

x
100 2

360
50-10

x
100 2

360
40-15

x
100 3

x
100 3

: 18.36%

b) 2/15, net 40
Discount percent: 2%
Final due date: 40
Discount Period: 15
Cost of not taking a financial discount:

: 29.38%

c) 3/10, net 45
Discount percent: 3%
Final due date: 45
Discount Period: 10
Cost of not taking a financial discount:

360
45-10

: 31.81%

d) 3/10, net 180

Discount percent: 3%
Final due date: 180
Discount Period: 10
Cost of not taking a financial discount:

Answer 2:

360
180-10

: 6.55%

Regis Clothiers:
Discount percent: 2%
Final due date: 60
Discount Period: 15
Cost of not taking a financial discount:
360

Discount percent

100 percent Discount percent

Final

due date Discount period

Cost of not taking a financial discount:

x
100 2

360
60-15

: 16.32%

Since Money can be borrowed at 11%, the firm should borrow the funds and
take the discount.

Answer 3:
Simmons Corp.:
Discount percent: 1.5%
Final due date: 60
Discount Period: 10
Cost of not taking a financial discount:
360

Discount percent

100 percent Discount percent

Final

due date Discount period

Cost of not taking a financial discount:

1.5
x
360
100 1.5
60-10

: 10.96%

Since Money can be borrowed at 12%, the firm should not borrow the funds.
Answer 4:
Interest: $25
Principal: $2000
Days loan is outstanding: 45 days
Effective rate of Interest:
Effective rate of Interest:

Interest
x
Principal
$25
x
$2000

Effective rate of Interest: 10%

Days in the year (360)

Days loan is outstanding
360
45