What Effective Interest Rate Is Charged to a Purchaser Receiving

question 93

Multiple Choice

What effective interest rate is charged to a purchaser receiving terms of 5/10, net 90 if the purchaser avoids the discount and pays in 90 days?

• A) 20.00%
• B) 22.81%
• C) 24.93%
• D)26.37%

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Definitions:

Time Value

The concept that money available at the present time is worth more than the same amount in the future due to its potential earning capacity.

Payback Period

The amount of time required for an investment to generate cash flows sufficient to recover its initial cost, a measure of an investment's breakeven point in time.

Cash Inflows

The total amount of money being transferred into a business, typically from operational, investment, and financing activities.

Cost Recovery

The process of regaining the value of an expense or investment over time through revenue or savings.