archived_user
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- Jun 18, 2026
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Q: two suppliers sell the same goods at the same prices, but under different credit terms. Supplier A offers credit terms of 2/15, net 45, wheres supplier B offers terms of 3/10, net 80. The company can borrow from a bank at an effective annual interest rate of 10%. Company will choose suppliers A or B?
From my calculation: EAR(A)=(1+2/98)(365/30)-1=27.86%. EAR(B)=(1+3/97)(365/80)-1=14.91%. I just simply compare these two numbers and get EAR(B)<EAR(A), therefore we choose supplier B. However, the answer said we cant simply compare 27.86% vs 14.91%. Can you explain why because both missing discount rate are in the same period.
From my calculation: EAR(A)=(1+2/98)(365/30)-1=27.86%. EAR(B)=(1+3/97)(365/80)-1=14.91%. I just simply compare these two numbers and get EAR(B)<EAR(A), therefore we choose supplier B. However, the answer said we cant simply compare 27.86% vs 14.91%. Can you explain why because both missing discount rate are in the same period.