Question Details

Tim Stark is a new accountant with Watts Company 


Tim Stark is a new accountant with Watts Company. Watts purchased merchandise on account
for $9,000. The credit terms are 2/10, n/30. Tim has talked with the company's banker and knows
that he could earn 8% on any money invested in the company's savings account.
Instructions
(a) Should Tim pay the invoice within the discount period or should he keep the $9,000 in the
savings account and pay at the end of the credit period? Support your recommendation with
a calculation showing which action would be best.
(b) If Tim forgoes the discount, it may be viewed as paying an interest rate of 2% for the use of
$9,000 for 20 days. Calculate the annual rate of interest that this is equivalent to.



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