Skip to content

CMA Intermediate · Financial Management and Business Data Analytics · Payable Management

For terms 2/10, net 30, which change would reduce the annualised cost of foregoing the cash discount, other things unchanged?

Extending the net credit period from 30 to 60 days reduces the cost. The annualised cost depends on 360 divided by the days gained by foregoing the discount, so a longer gap means fewer periods per year and a lower cost.

  1. AExtending the net credit period from 30 to 60 daysCorrect
  2. BReducing the net credit period from 30 to 20 days
  3. CIncreasing the discount from 2% to 4%
  4. DShortening the discount period from 10 to 5 days

Explanation

Cost = d/(100-d) x 360/(N - D). A longer net period enlarges the denominator N-D, so the annualisation factor falls (from 18 to 7.2). The other changes raise the cost or increase the factor.

Did you get it right without looking?

One question tells you little. A timed set on Payable Management shows your real accuracy, how long you take and where you lose marks.

Practise Payable ManagementFree diagnostic mock

More Payable Management questions