A firm has just received an invoice for $1,000 with the following terms: 3/10,net 30.In this case,the firm
A)should not worry about earning the cash discount because the amount is small.
B)can take a 10 percent discount if it pays within 3 days,and otherwise the full amount is due in 30 days.
C)can take a 3 percent discount if it pays the invoice on the 30th day.
D)will in effect be borrowing at an annual rate of 54 percent if it pays the invoice in 30 days.
E)should pay $900 if it pays within 10 days.

Question

Quizplus · Accepted Answer

A discount of 3/10,net 30 means that the buyer earns a 3 percent discount for paying the invoice just 20 days sooner than it should be paid.By not taking the discount,the company in effect is borrowing at an annual rate of 54 percent: (360 days/20 days)= 18 periods; (18 periods × 3 percent)= 54 percent a year.

A Firm Has Just Received an Invoice for $1,000 with the Following