Question

mestion 2 1 points Save Answ On August 5, Lacey Jewelry Store purchased $5,000 of jewelry from their supplier with terms of 2/10, n/45. Lacey did not have sufficient cash on August 15 to take advantage of the cash discount, but is able to borrow money from the bank at 12.6% ordinary interest. How much can be saved by borrowing the funds for 30 days in order to take advantage of the cash discount? TTT Arial 3 (12pt) T

Answer 1

In this case, Amount to be borrowed = Net amount payable to Supplier (after discount) = $5,000 - ($5000 x 2%) = $4,900.00 She has to borrow $4900 at 12.6% ordinary interest rate to avail the cash discount. Calculation of Amount Saved by borrowing Funds for 30 days to avail cash discount: Cash Discount ($5000 x 2%) $ 100.00 Less: Interest on Borrowed amount ($4900 x 12.6% x 30/365 days) $ (50.75) Amount Saved by Borrowing Funds $ 49.25