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Affleck Inc.'s business is booming, and it requires raising more capital. The company purchases supplies on terms of 1/10 net 20, and it presently takes the discount. One way of getting the required funds would be to forgo the discount, and the firm's owner believes she could delay payment to 40 days without adverse effects. What would be the efficient annual percentage cost of funds raised by this action? (Suppose a 365-day year.)

a. 10.59%

b. 11.15%

c. 11.74%

d. 12.36%

e. 13.01%

Discount %  1%  Net days  20

Discount days  10  Actual days to payment  40

EAR = [1 + Disc. %/(100 - Disc. %)][365/(Actual days - Disc. Period)] - %

Basic Finance, Finance

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