The Ault Company made a credit sale of $15,000. The invoice was sent today with the terms, 3/15 net 60. This customer normally pays at the net date. If your opportunity cost of funds is 9% the expected payment is worth how much today?
To calculate the expected payment worth today, we need to consider the terms of the credit sale and the opportunity cost of funds.
In this case, the terms of the credit sale are 3/15 net 60. This means that if the customer pays within 15 days, they are eligible for a 3% discount. Otherwise, the full payment is due within 60 days.
To calculate the expected payment worth today, we will take two scenarios into account:
1. If the customer pays within 15 days and takes advantage of the 3% discount:
The payment amount will be calculated as:
$15,000 - (3% * $15,000) = $14,550
2. If the customer pays after 15 days (between 16 and 60 days):
Here, we need to calculate the cost of funds for the time the payment is delayed. The opportunity cost of funds is given as 9%.
We can use the formula:
Payment worth today = Payment amount / (1 + Interest rate)^n
Where:
- Payment amount is $15,000
- Interest rate is 9%, which is equivalent to 0.09
- n is the number of days between the invoice date and the payment date
Let's say the customer pays after 30 days (which is within the 16-60 day range):
Payment worth today = $15,000 / (1 + 0.09)^(30/365) ≈ $14,684.71
Therefore, if the customer pays within 15 days, the expected payment worth today is $14,550. If the customer pays after 30 days, the expected payment worth today is approximately $14,684.71.