... that is, a 2% discount for payment within 10 days, otherwise full payment IS required within 30 days.
Required;
What is the cost of this ‘short term finance for Raja and Co?, if payment is not made Within discount period
What Raj a and Co should do, if market rate of return is 35% per year? What Raja and Co should do, if market rate of return is 38% per year?
(Problem 1) Ahmed and Co. sells goods for Rs 1,000 to Raja and Co offers credit term 2/10, n/30?
- Posted:
- 3+ months ago by masayani
- Topics:
- full, credit, sell, raja, problem, cost, discount, good, payment, days, day
Details:
Responses (3)
I am not going to go through the calculation again for the second problem, but the logic is as follows to the first problem:
1. If you do not take the discount the "cost" you pay is 36.5% per year
2. Now, think what you can do with money you DO not pay for 20 days:
- if you can (in theory) invest it at a market return of 38% p.a. why would you pay earlier? You get a return > than 36.5% by paying at 30 days
- if your investment would bring you a 35% p.a. return, why wouldn't you pay earlier and get a return of 36.5%?
hope this helps
Thankyou Sir for your help. May god bless all.
Sir your answer is correct but I want to why we avail discount at 35 % and why we don't take discount at 38%. Kindly reply thanks
Also I have ask similar question like this where value of good is 5 lac and 5/15 , n/45 is discount also the market rate of return are 45 % and 35 % so in this what we do take discount or leave discount and why we take or leave discount the answer would be 63.##% per year so what we do and why.