You have just purchased new goods worth 10,000 EUR from your supplier. Your supplier offers you to pay within 35 days. If you pay within the first 5 days, you get a discount of 1%. You know that he might accept a further delay, because he has a quite bad receivables management, but if he notices, which you estimate has a probability of roughly 50%, you might get an additional fee of 1000 EUR. You need your next delivery in 60 days and you know he will not deliver the new goods unless you pay the outstanding invoice. When would you pay? Why? What is the effective interest rate?
You have just purchased new goods worth 10,000 EUR from your supplier. Your supplier offers you to pay within 35 days. If you pay within the first 5 days, you get a discount of 1%. You know that he might accept a further delay, because he has a quite bad receivables management, but if he notices, which you estimate has a probability of roughly 50%, you might get an additional fee of 1000 EUR. You need your next delivery in 60 days and you know he will not deliver the new goods unless you pay the outstanding invoice. When would you pay? Why? What is the effective interest rate?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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- You have just purchased new goods worth 10,000 EUR from your supplier. Your supplier offers you to pay within 35 days. If you pay within the first 5 days, you get a discount of 1%. You know that he might accept a further delay, because he has a quite bad receivables management, but if he notices, which you estimate has a probability of roughly 50%, you might get an additional fee of 1000 EUR. You need your next delivery in 60 days and you know he will not deliver the new goods unless you pay the outstanding invoice. When would you pay? Why? What is the effective interest rate?
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