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) in effect, will 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

The terms "3/10, net 30" mean a 3% discount is available if paid within 10 days. If not, the full amount is due in 30 days. Not taking the discount is equivalent to borrowing at a high annual rate, calculated as approximately 54%.

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