A firm offers terms of 1/10, net 30. What effective annual interest rate does the firm earn

Question:

A firm offers terms of 1/10, net 30. What effective annual interest rate does the firm earn when a customer does not take the discount? Without doing any calculations, explain what will happen to this effective rate if:

a. The discount is changed to 2 percent.

b. The credit period is increased to 40 days.

c. The discount period is decreased to 20 days.

d. What is the EAR for each scenario?

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For book-img-for-question

Essentials of Corporate Finance

ISBN: 978-0078034756

8th edition

Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan

See More Books

Question Posted: Feb 23, 2017 02:20 AM

See More Questions

A firm offers terms of 2/10, net 30 a-What effective annual interest rate does the firm earn when a customer does not take the discount? (Use 365 days a year. Do not round intermediate calculations....
Explain what will happen to U.S. potential GDP, employment, and real wage rate. Suppose that the United States cracks down on illegal immigrants and returns millions of workers to their home...
Explain what will happen to the price level, Real GDP, and the unemployment rate in the following cases: a. AD rises and SRAS is constant. b. AD falls and SRAS is constant. c. AD is constant and SRAS...
The beam shown below is supported by a pin at A and a roller at B. The weight of the beam is 12 kN and a 15 kN force is applied 3 m to the right of A as shown. Determine the reaction forces at A and...
Suppose Capital One is advertising a 60-month, 5.99% APR motorcycle loan. If you need to borrow $8000 to purchase your dream Harley-Davidson, what will your monthly payment be?
Who should attend the meeting?
The product manager of GE is reviewing the penetration of trash compactors in American homes. After more than two decades in existence, this product is in relatively few homes. What problems can...
Pomeroy Corporation owns an 80% interest in Sherer Company and a 90% interest in Tampa Company. On January 2, 2011, Tampa Company sold equipment with a book value of $600,000 to Sherer Company for...
Exercise 3-14 (Part Level Submission) Selected transactions for Blue Spruce Corp. during its first month in business are presented below. Sept. 1 Issued common stock in exchange for $20,500 cash...
Allie has bought a new apple orchard. The orchard has a single file of trees, numbered from 1 to N. Each tree has a certail number of ripe apples. Allie has a rule she wants to follow. She wants to...
Two Doors Down, Inc., has weekly credit sales of $34,500, and the average collection period is 37 days. What is TDD's average accounts receivable figure?
A7X, Inc., has an average collection period of 31 days. Its average daily investment in receivables is $94,000. What are annual credit sales? What is the receivables turnover?
In Problem 9.24, check for each case if the conditions for a normal approximation hold. Data from in Problem 9.24 Construct a confidence interval for using each random sample and a normal...
Air at $1 \mathrm{~atm}$ and $25^{\circ} \mathrm{C}$ flows in a 4-cm-diameter glass pipe at a velocity of $7 \mathrm{~m} / \mathrm{s}$. The friction factor for this flow is (a) 0.0266 (b)...
Find the regime of the boundary layer at the location of $0.1 \mathrm{~m}$ from the leading edge of an aerofoil, if the airspeed is $80 \mathrm{~ms}^{-1}$, and air condition is at that of sea...
``Nuclear Deterrence,'' by Harvey A . Smith, UMAP327. The author analyzes the stability of the arms race, assuming objectives similar to those suggested by General Taylor. The module develops...
A saturated vapor feed at $1000.0 \mathrm{kmol} / \mathrm{h}$ of methanol $(5.0 \mathrm{~mol} \%)$ and water $(95.0 \mathrm{~mol} \%)$ is fed to a distillation column with 18 stages plus a...
Use the partition functions in Equations 1.98, 1.99, and 1.100 to find the translational, rotational, and vibrational contributions to the average energy of a diatomic molecule. Compare each result...
Income is a possible explanation. Income per capita is higher in the United States than in the other five countries discussed in case 1.2 (World Bank 2017). This extra income could result in...
Show that the block upper triangular matrix A in Example 5 is invertible if and only if both A 11 and A 22 are invertible. Data from in Example 5 EXAMPLE 5 A matrix of the form A = [ A11 A12 0 A22 is...
Consider the following two mutually exclusive projects: Sketch the NPV profiles for X and Y over a range of discount rates from 0 to 25 percent. What is the crossover rate for these two projects?...
What is the profitability index for the following set of cash flows if the relevant discount rate is 10 percent? What if the discount rate is 15 percent? If it is 22 percent? Year Cash Flow 0 -27500...
The Matterhorn Corporation is trying to choose between the following two mutually exclusive design projects: a. If the required return is 11 percent and the company applies the profitability index...
Series of Compound Interest Techniques The following are several situations involving compound interest. Required: Using the appropriate table, solve each of the following: ( Click here to access the...
If Clark Kelly has recognized gain on an exchange of like-kind property held for investment use, where does Clark report the gain? First on Form 8824, then carried to Schedule D. First on Form 8824,...
An investor put 40% of her money in Stock A and 60% in Stock B. Stock A has a beta of 1.2 and Stock B has a beta of 1.6. If the risk-free rate is 5% and the expected return on the market is 12%,...

A firm offers terms of 1/10, net 30. What effective annual interest rate does the firm earn

Question:

Step by Step Answer:

Input Area Terms 1 10 Net 30 a Ne...View the full answer

Essentials of Corporate Finance

Students also viewed these Corporate Finance questions