The single equivalent discount rate is the interest rate that, when applied to the list price of a product or service, results in the same final price as a series of multiple discounts.
Key Facts
- Definition: The single equivalent discount rate is the interest rate that, when applied to the list price of a product or service, results in the same final price as a series of multiple discounts.
- Calculation: To calculate the single equivalent discount rate, subtract the net price equivalent rate from 1. The net price equivalent rate is the product of all the individual discounts.
- Purpose: The single equivalent discount rate allows businesses and consumers to compare different discount offers and determine the overall impact on the final price. It simplifies the calculation process and helps in making informed purchasing decisions.
- Trade Discount: The trade discount is the difference between the list price and the net price. It can be calculated by multiplying the list price by the single equivalent discount rate.
- Net Price: The net price is the final price after applying all the discounts. It can be calculated by multiplying the list price by the net price equivalent rate.
Calculation
To calculate the single equivalent discount rate, subtract the net price equivalent rate from 1. The net price equivalent rate is the product of all the individual discounts.
Purpose
The single equivalent discount rate allows businesses and consumers to compare different discount offers and determine the overall impact on the final price. It simplifies the calculation process and helps in making informed purchasing decisions.
Example
Consider a product with a list price of $100. If the product is offered with a 10% trade discount and a 5% volume discount, the single equivalent discount rate would be calculated as follows:
Single equivalent discount rate = 1 - (1 - 0.10) * (1 - 0.05)
= 1 - 0.90 * 0.95
= 1 - 0.855
= 0.145
Therefore, the single equivalent discount rate is 14.5%. This means that applying a single discount of 14.5% to the list price of $100 would result in the same final price as applying the 10% trade discount and the 5% volume discount.
Trade Discount
The trade discount is the difference between the list price and the net price. It can be calculated by multiplying the list price by the single equivalent discount rate.
Net Price
The net price is the final price after applying all the discounts. It can be calculated by multiplying the list price by the net price equivalent rate.
Conclusion
The single equivalent discount rate is a useful tool for businesses and consumers to compare different discount offers and determine the overall impact on the final price. It simplifies the calculation process and helps in making informed purchasing decisions.
References
- Complete the following table: Round net price, equivalent rate, and single equivalent discount rate to 4 decimal places. Round the dollar amounts to the nearest cent.
- Discount Rate
- 4.1 Discounts – Fundamentals of Business Math
FAQs
What is a single equivalent discount rate?
A single equivalent discount rate is the interest rate that, when applied to the list price of a product or service, results in the same final price as a series of multiple discounts.
How is the single equivalent discount rate calculated?
To calculate the single equivalent discount rate, subtract the net price equivalent rate from 1. The net price equivalent rate is the product of all the individual discounts.
What is the purpose of the single equivalent discount rate?
The single equivalent discount rate allows businesses and consumers to compare different discount offers and determine the overall impact on the final price. It simplifies the calculation process and helps in making informed purchasing decisions.
How is the trade discount calculated?
The trade discount is the difference between the list price and the net price. It can be calculated by multiplying the list price by the single equivalent discount rate.
How is the net price calculated?
The net price is the final price after applying all the discounts. It can be calculated by multiplying the list price by the net price equivalent rate.
What are the advantages of using the single equivalent discount rate?
- Simplifies the calculation process
- Allows for easy comparison of different discount offers
- Helps in making informed purchasing decisions
What are the limitations of the single equivalent discount rate?
- Does not take into account the order of the discounts
- May not be accurate for all types of discounts
When should the single equivalent discount rate be used?
The single equivalent discount rate should be used when comparing different discount offers or when calculating the overall impact of multiple discounts on the final price.