Some sort of time value of money formula..? Suggestions welcome!
Posted: April 28th, 2018, 9:38 pm
A weird one, here, not totally *on* topic, but not totally *off* topic, either. Your indulgence is craved.
As part of a work-related project, I've been researching dynamic discounting. (Dynamic discounting, briefly, is where a customer pays a supplier's invoice ahead of the due date, in exchange for a discount.)
One report that I looked at states that:
Now, there are all sorts of ways in which a figure of 36% could be obtained. No clue was provided. But something about the wording hints at a mathematical calculation here -- the time value of money, and all that.
It's important to note that I would be extremely suspicious about the value of any simplistic Excel-type formula in real life. In the real world, the benefits of such a discount would take some considerable disentangling. But is there a simple Excel-type formula at work, here? And if so, what is it?
In other words, can anyone suggest a way in which 36% is obtained?
TIA for any suggestions!
MDW1954
As part of a work-related project, I've been researching dynamic discounting. (Dynamic discounting, briefly, is where a customer pays a supplier's invoice ahead of the due date, in exchange for a discount.)
One report that I looked at states that:
A subsequent sentence makes clear that this is the benefit accruing to the customer, not the supplier.The potential rewards for early supplier payments are great. Even the standard discount of 2 percent for payment within 10 days translates
to an annual percentage rate of 36 percent.
Now, there are all sorts of ways in which a figure of 36% could be obtained. No clue was provided. But something about the wording hints at a mathematical calculation here -- the time value of money, and all that.
It's important to note that I would be extremely suspicious about the value of any simplistic Excel-type formula in real life. In the real world, the benefits of such a discount would take some considerable disentangling. But is there a simple Excel-type formula at work, here? And if so, what is it?
In other words, can anyone suggest a way in which 36% is obtained?
TIA for any suggestions!
MDW1954