Payne Industries can borrow money from the local bank at 14%. The company just acquired inventory costing $2,900, which has terms of 2/10, n/30. Assuming a 365-day year, which of the following statements is true?
A) Do not pay within the discount period since the effective annual rate of the discount is 37.2%, while the cost to borrow money is 14%.
B) Pay within the discount period since the effective annual rate of the discount is 37.2%, while the cost to borrow money is 14%.
C) Do not pay within the discount period since the effective annual rate of the discount is 24%, while the cost to borrow money is 14%.
D) Pay within the discount period since the effective annual rate of the discount is 24%, while the cost to borrow money is 14%.
E) Do not pay within the discount period since the 2% discount is less than the 14% cost to borrow money.
B
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