Answer to Question #136115 in Finance for Michelle

Question

Assume that a firm is offered 2/10 net 30, indicating that if the account is settled in 10 days, the firm may keep a discount of 2%. If the discount is not taken, then the full amount is payable in 30 days.

3.1.1 Calculate the cost of foregoing the discount
3.1.2 Differentiate between the various aims of appraisal projects

Answer 1

lets assume the full amount payable is $500

$\therefore$ Invoice full amount: $500

Invoice date: June 1

Invoice due date: 30 days 

Payment terms: 2/10 net 30

Discount period: 10 days

Begin counting days from the day after the invoice date.  

A quick formula is 100% – discount % x invoice amount.

100% – 2% = 98% x $500 = $490.