Gce Model Questions Vol1 2019 Commerce Question 3

A company issues a purchase order for 500 units of product X at a unit price of \(\N2,000\). The supplier offers a trade discount of 5 % on the total order value. If the company pays within 10 days it can also claim a cash discount of 2 % on the amount after the trade discount.\n\n(i) Calculate the amount payable when the cash discount is taken.\n(ii) Determine the effective annual interest rate that the cash discount represents (assume a 365‑day year).\n(iii) Alternatively, the company may defer payment for 30 days, forgoing the cash discount but incurring an interest charge of 3 % per annum on the amount after the trade discount, calculated for the 30‑day period. Compute the total amount payable under this option.\n(iv) Which option is financially cheaper and by how much?