Expected Payment Worth

QUESTION

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?
According to the given information, Credit sale made is $15,000 The terms of the payment is 3/15 net 60 Opportunity cost is 9% The terms 3/15 net 60 is nothing but the discount which are used by sellers to encourage buyers to pay earlier, improving the sellers cash flow. The term 3/15 net 60 means that the full amnount which is due in 60 days, but a 3% discount is available if the amount is paid in 15 days. Out of the total credit sale, a 3% discount is available if the amount is paid in 15 days. Calculating the 3% discount on the amount of credit sale: Discount = 3% ($15,000) = $450 Therefore, a discount of $450 is available if the amount is paid in 15 days. Total amount the buyer should pay is [(Total credit sale) (Discounted amount )] = [$15,000 $450] = $14,550 Calculating the present value of expected payment at 9% opportunity cost of capital: The present value of the expected payment is calculated

using excel sheet: Step1: Go to excel and click “insert” to insert the function. Step2: select the “PV” function as we are finding the present value of the expected payment in this case. Step3: Enter the values as Rate = 9% / 12; Nper = 2 /12; PMT = 0; FV = -14550 Step4: Click “OK” to get the desired value. The value comes to “14,531.89” In the above calculation, we are dividing the rate and the number of periods by 12 because the term of the payment is 60days (which is 2 months) . Therefore,we are calculating the value using monthly payment. Therefore, the present value of the expected payment is $14,531

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