A company forecasts sales totaling 100,000 for the next quarter assuming a 1% discount for payment within
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A company forecasts sales totaling €100,000 for the next quarter assuming a 1% discount for payment within seven days. The maximum permitted credit period is 28 days, although some customers take longer to pay. Assuming the customers’ cost of borrowing is 15% per annum, should a customer accept the discount for early payment? What difference does it make to your calculations if a customer takes 45 days’ credit?
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