Question

3. To try to achieve prompt payment of their invoices, suppliers offer discounts for early payment. 5/10 and n/30 which are the terms printed on the invoice, which indicate a 5% discount if paid within 10 days and the net discount if paid between 10 and 30 days. If a merchant receives an invoice for $50,000 under these terms, should he obtain a loan with a rate of 30% to pay the invoice on the 10th?

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Answer to a math question 3. To try to achieve prompt payment of their invoices, suppliers offer discounts for early payment. 5/10 and n/30 which are the terms printed on the invoice, which indicate a 5% discount if paid within 10 days and the net discount if paid between 10 and 30 days. If a merchant receives an invoice for $50,000 under these terms, should he obtain a loan with a rate of 30% to pay the invoice on the 10th?

Expert avatar
Cristian
4.7
116 Answers
Given: Discount terms 5/10, n/30 where 5/10 means a 5% discount if paid within 10 days and the net amount is due in 30 days.

Let's calculate the amount that needs to be paid within 10 days to avail the 5% discount:
Discounted amount = $50,000 - (5% of $50,000)
Discounted amount = $50,000 - ($50,000 \times 0.05)
Discounted amount = $50,000 - $2,500
Discounted amount = $47,500

To decide if the merchant should obtain a loan with a rate of 30% to pay the $47,500 on the 10th day, we need to calculate the interest on the loan for 10 days:

Interest = Principal x Rate x Time
Interest = $47,500 x 0.30 x (10/365)
Interest = $1,425

Therefore, the total amount that needs to be repaid if the merchant obtains a loan at a rate of 30% to pay on the 10th day is:
Total amount = $47,500 + $1,425
Total amount = $48,925

\boxed{\text{Answer: The merchant should not obtain a loan with a rate of 30% to pay the invoice on the 10th day; it would cost more than the 5% discount.}}

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