Henley Inc. purchased $160,000 of goods on account. On May 1, the company receives

Henley Inc. purchased $160,000 of goods on account. On May 1, the company receives an invoice from the supplies with the credit terms 2/15, n/45. To pay the amount before the end of the discount period, Tiger would need to borrow 7% annual interest rate. How much will tiger outdoors save if it pays invoice by may 15?

Expert Solution

2/15, n/45 means that the discount period is 2 days and the net payment period is 45 days.

The discount amount is 2% of $160,000, which is $3,200.The amount due after the discount period is $156,800.

The interest on $156,800 at 7% for 45 days is $4,800.

Therefore, the total amount due if the invoice is paid by May 15 is $152,000.

This is $4,800 less than the amount due if the invoice is paid after the discount period.

If Tiger Outdoors pays the invoice by May 15, it will save $4,800.

Nabeel answered 2 years ago

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