Company X sells on a 3/20, net 90, basis. Company Y buys goods with an invoice...

Company X sells on a 3/20, net 90, basis. Company Y buys goods with an invoice of $2,000. a. How much can company Y deduct from the bill if it pays on day 20? b. How many extra days of credit can company Y receive if it passes up the cash discount? c. What is the effective annual rate of interest if Y pays on the due date rather than day 20?

Expert Solution

a. 2000*3% =60

b. 90-20 =70 days

c. effective annual rate = discount rate/ (1 - discount rate) * 365/(full payment day - discount payment days)

=(1+3/97)^(365/70)-1

=17.21%

jeff jeffy answered 2 years ago

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