Sue Cole is a new accountant with Simon Company. Simon purchased merchandise on account for $9,000. The credit terms are 1/10, n/30. Sue has talked with the company's banker and knows that she could earn 6% on any money invested in the company's savings account.
Instructions
(a) Should Sue pay the invoice within the discount period or should she keep the $9,000 in the savings account and pay at the end of the credit period? Support your recommendation with a calculation showing which action would be best.
(b) If Sue forgoes the discount, it may be viewed as paying an interest rate of 1% for the use of $9,000 for 20 days. Calculate the annual rate of interest that this is equivalent to.

Question

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The Answer of Sue Cole is a new accountant with Simon Company. Simon purchased merchandise on account for $9,000. The credit terms are 1/10, n/30. Sue has talked with the company's banker and knows that she could earn 6% on any money invested in the company's savings account.
Instructions
(a) Should Sue pay the invoice within the discount period or should she keep the $9,000 in the savings account and pay at the end of the credit period? Support your recommendation with a calculation showing which action would be best.
(b) If Sue forgoes the discount, it may be viewed as paying an interest rate of 1% for the use of $9,000 for 20 days. Calculate the annual rate of interest that this is equivalent to.

Sue Cole Is a New Accountant with Simon Company