Question

1.) Compute the cost of not taking the following cash discounts:
a.) 2/10 net 40

b.) 2/15 net 30

c.) 2/10 net 45

d.) 3/10 net 90

Answer 1

Answer:

a.) 2/10 net 40	24.48%
b.) 2/15 net 30	48.96%
c.) 2/10 net 45	20.99%
d.) 3/10 net 90	13.91%

Working notes for the above answer is as under

Calculation of the cost of not taking the following cash discounts:

a.) 2/10 net 40

Cost of lost discount

=(Discount % / 100%-Discount %) x (360 / Final due date- discount period)

=(2%/98%) x (360/ 40-10)

=2.04% x12

=24.48%

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b.) 2/15 net 30

Cost of lost discount

=(Discount % / 100%-Discount %) x (360 / Final due date- discount period)

=(2%/98%) x (360/ 30-15)

=2.04% x24

=48.96%

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c.) 2/10 net 45

Cost of lost discount

=(Discount % / 100%-Discount %) x (360 / Final due date- discount period)

=(2%/98%) x (360/ 45-10)

=2.04% x10.29

=20.99%

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d.) 3/10 net 90

Cost of lost discount

=(Discount % / 100%-Discount %) x (360 / Final due date- discount period)

=(3%/97%) x (360/ 90-10)

=3.09%x4.50

=13.91%