A company is thinking of borrowing money at an 18% annual interest rate in order to pay a $30,000 invoice within the discount period. The invoice terms are 2/10, n/30. They should borrow the money because they will have a net savings of 19.2%. True or false?

Question

Business

Porter Cummings

11 March, 17:40

A company is thinking of borrowing money at an 18% annual interest rate in order to pay a $30,000 invoice within the discount period. The invoice terms are 2/10, n/30. They should borrow the money because they will have a net savings of 19.2%. True or false?

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Answers (1)

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Claire Knight · Answer 1

True

Explanation:

The annual interest rate correlated with the credit conditions is 37.2 per cent and is determined by multiplying the 20-day rate of interest ($600 - $29,400) by the amount of 20-day periods over a year (365-20).

18 per cent borrowing would save the company 19.2 per cent (37.2 per cent-18 per cent).