A firm offers terms of 2/10, net 40. What effective annual interest rate does the firm earn

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A firm offers terms of 2/10, net 40. 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 3 percent.

b. The credit period is increased to 60 days.

c. The discount period is increased to 20 days.

d. What is the EAR for each scenario?

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Essentials Of Corporate Finance

ISBN: 9780073405131

6th Edition

Authors: Stephen A. Ross, Randolph Westerfield, Bradford D. Jordan

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Question Posted: Apr 24, 2012 07:55 AM

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A firm offers terms of 2/10, net 40. What effective annual interest rate does the firm earn

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The interest rate for the term of the discount is Interest rate 0298 Interest rate 02...View the full answer

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