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?
Taking a cruise is a costly discretionary expense. In a recent year, the top five cruise lines in the world had this many passengers: Round your answers to the nearest integer. a. The computations...
In January 2022, Joey contributed investment land he had held two years with a FMV of $$6,000$ and an adjusted basis of $$10,000,$ and Rachel contributed $$6,000$ cash to form the Green...
How could a strategists attitude toward social responsibility affect a firms strategy? On a 1 to 10 scale ranging from Naders view to Friedmans view, what is your attitude toward social...
In a wheel of a bike, there are six spokes. If tensile forces in consecutive four spokes are 10N, 14N, 12N, and 5N respectively. Calculate the tensile forces in remaining two spokes. The wheel is in...
Cogent is a rapidly growing company that makes software which identifies people using biometrics-fingerprints, faces, eyeballs, and other personal characteristics. The firm is making terminals that...
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?
The equation of a transverse wave on a string is y = (2.0 mm) sin [(20 m-1) x (600 s-1)t]. The tension in the string is 15 N. (a) What is the wave speed? (b) Find the linear density of this string...
When you hear the word statistics, what comes to mind? Look up the word in a dictionary, and see if you wish to supplement or change any part of your answer.
Consider the network shown in Figure 4.29, in which horizontal lines represent transit providers and numbered vertical lines are interprovider links. (a) How many routes to P could provider Qs BGP...
Calculate the bandwidth delay product for the following links. Use one-way delay, measured from first bit sent to first bit received. (a) 10-Mbps Ethernet with a delay of 10 s. (b) 10-Mbps Ethernet...
Suppose that nodes in the network shown in Figure 3.59 participate in link-state routing, and C receives contradictory LSPs: one from A arrives claiming the AB link is down, but one from B arrives...
Give an example of a situation in which multicast addresses might be beneficial.
On January 1, 2008, Creative Works Inc. had cash and common stock of $60,000. At that date the company had no other asset, liability or equity balances. On January 2, 2008, it purchased for cash...
Vectors are drawn from the center of a regular n-sided polygon in the plane to the vertices of the polygon. Show that the sum of the vectors is zero.
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...
Ralph makes ( 21)/(2) batches of oatmeal cookies. Each batch makes 24 cookies. Ralph gives away ( 1)/(4) of his cookies to his class at school and ( 2)/(5) of his remaining cookies to his bus driver....
Create a RESTful API using Node.js and Express that performs CRUD operations on a collection of books stored in memory.
Find a minimum spanning tree for the weighted graph using Kruskal's algorithm. B 18 C 23 A 16 S (5 22 20 19 24 23 E D

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