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TRINIGYAL · February 2009

does anyone remember how to calculate the annual percentage cost of discount in the simulation. It was task 7 - invoice £700 but 5% discount will be offered if the invoice is paid in 14 days...

CathG · February 2009

I've been learning this today -

You'll also need how many days for the normal settlement period -

the formula is:

(d/(100-d)) x (365/(N-D)) x 100

where d = settlement discount percentage (5%)
N = Normal Settlement Period in days (?)
D = Settlement period for early repayment in days (14 days)

SandyHood · February 2009

TRINIGYAL

CathG has correctly given the simple interest formula :

(d/(100-d)) x (365/(N-D)) x 100
I have told my class that if they use this formula they should add this sentence:
This value is the simple interest percentage rate rather than a true compounded annual percentage so is under valuing the true cost to the business.
The annual percentage cost of discount involves a geometric calculation so it has to be done using a calculator that has a "to the power of" button.
1+(d/(100-d))^ (365/(N-D))-1

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