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Chapter 3: 25BP_b (page 252)

Harper Engine Company needs \(631,000 to take a cash discount of 2.5/20, net 75. A banker will lend the money for 55 days at an interest cost of \)13,300.

b. How much would it cost (in percentage terms) if Harper did not take the cash discount but paid the bill in 75 days instead of 20 days?

Short Answer

Expert verified

The cost of not taking the discount is 16.77%.

Step by step solution

01

Information provided in the question

Discount = 2.5%

Discount period = 20 days

Payment period =75 days

02

Calculation of the cost of not taking the discount

The cost of not taking the discount is 16.77%.

Costofnottakingdiscount=Discountpercentage100%-Discountpercentage脳360Finalduedate-Discountperiod=2.5%97.5%脳36075-20=16.77%

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