Question

A supplier is offering your firm a cash discount of 2 percent if purchases are paid for within ten days; otherwise, the bill is due at the end of 60 days. Would you recommend borrowing from a bank at an 18 percent annual interest rate to take advantage of the cash discount offer?

Answer 1

Answer: not, I wouldn't reccomend to borrow from a bank at 18% annual

Explanation: You will pay more, as montlhy interest would be 1.5% and for the 60 days you will pay 3% interest for the loan (18/12*2).

Example:

Price $ 100

with 2% of discount by paying within 10 days would be $98

And if you ask for a loan of $98 (that is the amount you need to pay with the discount) in 60 days you must pay to the bank $100.94 (98*1.03)