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)