Answer (B) is correct . The company will initially lose $2 by not taking the discount. This amount is partially offset by interest earned on $98 for 50 days of $.817. Thus, the net cost is $1.183 ($2.00 – $.817). Since a 360-day year has 7.2 fifty-day periods, the total annualized cost is $8.52 (7.2 × $1.183). The loss rate is about 8.7% ($8.52 ÷ $98).
Answer (A) is incorrect because The cost of not taking the cash discount is 8.7%. The company will initially lose $2 by not taking the discount. This amount is partially offset by interest earned on $98 for 50 days of $.817. Thus, the net cost is $1.183 ($2.00 – $.817). Because a 360-day year has 7.2 periods of 50 days each, the total annualized cost is $8.52 (7.2 × $1.183). The loss rate is about 8.7% ($8.52 ÷ $98).
Answer (C) is incorrect because The cost of not taking the cash discount is 8.7%. The company will initially lose $2 by not taking the discount. This amount is partially offset by interest earned on $98 for 50 days of $.817. Thus, the net cost is $1.183 ($2.00 – $.817). Because a 360-day year has 7.2 periods of 50 days each, the total annualized cost is $8.52 (7.2 × $1.183). The loss rate is about 8.7% ($8.52 ÷ $98).
Answer (D) is incorrect because The cost of not taking the cash discount is 8.7%. The company will initially lose $2 by not taking the discount. This amount is partially offset by interest earned on $98 for 50 days of $.817. Thus, the net cost is $1.183 ($2.00 – $.817). Because a 360-day year has 7.2 periods of 50 days each, the total annualized cost is $8.52 (7.2 × $1.183). The loss rate is about 8.7% ($8.52 ÷ $98).
|
