Asked by Taylor Lopez on Jul 14, 2024
Verified
Haverly offers its customers an effective interest rate of 24.33% on its terms of sale. They offer a 1% discount if payment is made within 5 days. Assuming a 365-day year, what terms of sale does Haverly use?
A) 1/5, net 30
B) 1/5, net 20
C) 1/5, net 15
D) 1/5, net 10
Terms of Sale
The conditions under which a seller is willing to sell a product or service, including price, payment method, and delivery time.
Prompt Payment Discount
A reduction in the amount due on a bill offered by a seller to encourage early payment by the buyer.
- Examine the monetary consequences of ignoring prompt payment discounts.
Verified Answer
MB
Marisa BalzanoJul 19, 2024
Final Answer :
B
Explanation :
To find the terms of sale, we need to start with the effective interest rate and calculate the discount period.
Effective Interest Rate = (1 - Discount %) x (365 / (Full payment days - Discount days)) x 100%
Let's plug in the given values:
24.33% = (1 - 1%) x (365 / (Full payment days - 5)) x 100%
Simplifying the equation, we get:
0.2433 = 0.99 x (365 / (Full payment days - 5))
Full payment days - 5 = 365 / (0.2433 / 0.99)
Full payment days - 5 = 80.98
Full payment days = 86.98
So the terms of sale are 1/5, net 20.
Effective Interest Rate = (1 - Discount %) x (365 / (Full payment days - Discount days)) x 100%
Let's plug in the given values:
24.33% = (1 - 1%) x (365 / (Full payment days - 5)) x 100%
Simplifying the equation, we get:
0.2433 = 0.99 x (365 / (Full payment days - 5))
Full payment days - 5 = 365 / (0.2433 / 0.99)
Full payment days - 5 = 80.98
Full payment days = 86.98
So the terms of sale are 1/5, net 20.
Learning Objectives
- Examine the monetary consequences of ignoring prompt payment discounts.
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