This answer results from using the total period for payment in the denominator of the first part of the formula for calculating the cost of not taking a cash discount that is offered for early payment. The denominator should be Total Period for Payment ? Period for Discount Payment. The correct formula is: 360 × Discount % Total period for payment ? Period for discount payment 100% ? Discount %
This is a straightforward question that is solved by using the formula for calculating the cost of not taking a cash discount that is offered for early payment. The formula is: 360 × Discount % Total period for payment ? Period for discount payment 100% ? Discount % 360 × .03 90 ? 10 1.00 ?.03 = 4.5 × .030927835 = .139 or 13.9%.
This answer results from two errors: (1) using the total period for payment in the denominator of the first part of the formula for calculating the cost of not taking a cash discount that is offered for early payment and (2) using 100% (or 1.00) in the denominator of the second part of the formula. The denominator of the first part of the formula should be Total Period for Payment ? Period for Discount Payment. The denominator of the second part of the formula should be 100% (or 1.00) minus the discount % (or the discount % in decimal form). The correct formula is: 360 × Discount % Total period for payment ? Period for discount payment 100% ? Discount %
This answer results from using 100% (or 1.00) in the denominator of the second part of the formula for calculating the cost of not taking a cash discount that is offered for early payment. The denominator should be 100% (or 1.00) minus the discount % (or the discount % in decimal form). The correct formula is: 360 × Discount % Total period for payment ? Period for discount payment 100% ? Discount %
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