Help! Cash Discounts/ Debtor Days????
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Please help! Got a question from college and have no idea where to start! Have included whole question, hoping someone can help me!
Company has 60 day credit terms
Credit sales for year are £10.5 million
Company has £2 million overdraft interest rate 9% p.a.
Q) Calculate the actual current cost of financing debtors and compare this to the costs involved with a cash discount of 2% if settlement is within 7 days
(i) if all credit customers took the opportunity
(ii) if 50% of credit customers took the opportunity
Can anyone help??!!
Thanks
Company has 60 day credit terms
Credit sales for year are £10.5 million
Company has £2 million overdraft interest rate 9% p.a.
Q) Calculate the actual current cost of financing debtors and compare this to the costs involved with a cash discount of 2% if settlement is within 7 days
(i) if all credit customers took the opportunity
(ii) if 50% of credit customers took the opportunity
Can anyone help??!!
Thanks
0
Comments
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Re:Help! Cash Discounts/ Debtor Days????
Hi Enrietta.
Giving the discount will cost you 2%, but will save you 9% overdraft interest.
You need to calculate what the interest charges are, compared to the discount.
Scott.0