(Problem 1) Ahmed and Co. sells goods for Rs 1,000 to Raja and Co offers credit term 2/10, n/30?
... that is, a 2% discount for payment within 10 days, otherwise full payment IS required within 30 days.Required;What is the cost of this ‘sho
... that is, a 2% discount for payment within 10 days, otherwise full payment IS required within 30 days.
Required;
What is the cost of this ‘short term finance for Raja and Co?, if payment is not made Within discount period
What Raj a and Co should do, if market rate of return is 35% per year? What Raja and Co should do, if market rate of return is 38% per year?
or:... that is, a 2% discount for payment within 10 days, otherwise full payment IS required within 30 days.Required;What is the cost of this \u2018short term finance for Raja and Co?, if payment is not made Within discount periodWhat Raj a and Co should do, if market rate of return is 35% per year? What Raja and Co should do, if market rate of return is 38% per year?
or:Reason for the accepting of discount at 35% and not to avail discount at 38%
or:I am not going to go through the calculation again for the second problem, but the logic is as follows to the first problem:1. If you do not take the discount the \"cost\" you pay is 36.5% per year2. Now, think what you can do with money you DO not pay for 20 days: - if you can (in theory) invest it at a market return of 38% p.a. why would you pay earlier? You get a return > than 36.5% by paying at 30 days - if your investment would bring you a 35% p.a. return, why wouldn't you pay earlier and get a return of 36.5%?hope this helps
