A company purchased merchandise inventory at a cost of $8,500 with credit terms 2/10, net 60. If the company borrows $8,330 to pay for the purchase on the last day of the discount period and pays the loan plus interest in the amount of $8,466.93 on the last day of the credit period, what is the net savings?
To find the net savings, we need to calculate the amount saved by taking advantage of the discount period and compare it to the cost of borrowing.
First, let's calculate the discount amount. The credit terms state that a 2% discount is given if the merchandise is paid within 10 days of the purchase. So, the discount can be calculated as:
Discount = Cost of merchandise * Discount rate
Discount = $8,500 * 0.02
Discount = $170
Therefore, the discount amount is $170.
Now, let's calculate the interest paid for borrowing $8,330. We can find the interest by subtracting the amount borrowed from the total amount paid:
Interest = Total amount paid - Amount borrowed
Interest = $8,466.93 - $8,330
Interest = $136.93
Therefore, the interest paid is $136.93.
To find the net savings, we subtract the interest paid from the discount amount:
Net Savings = Discount amount - Interest paid
Net Savings = $170 - $136.93
Net Savings = $33.07
Therefore, the net savings in this scenario is $33.07.