The expression “3/10, net 45” means that the customers receive a 3 percent discount if they pay…

The expression “3/10, net 45” means that the customers receive a 3 percent discount if they pay within 10 days; otherwise, they must pay in full within 45 days. What would the seller's cost of capital have to be in order for the discount to be cost-justified? (HINTS: Consider Opportunity Cost. Remember that cost of capital is calculated on an annual rate, so you'll have to convert rates to compare apples to apples. Use simple interest – don't compound – for any rate conversion calculations.)

 

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