cash discount
Question
Neveready Flashlights Inc. needs $359,000 to take a cash discount of 3/18, net 72. A banker will loan the money
for 54 days at an interest cost of $14,500.
| a. | What is the effective rate on the bank loan? (Use a 360-day year. Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) |
| Effective rate of interest | % |
| b. | How much would it cost (in percentage terms) if the firm did not take the cash discount but paid the bill in 72 days instead of 18 days? (Use a 360-day year. Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) |
| Cost of not taking a cash discount | % |
| c. | Should the firm borrow the money to take the discount? |
| NoYes |
| d. | If the banker requires a 20 percent compensating balance, how much must the firm borrow to end up with the $359,000? |
| Amount to be borrowed | $ |
| e-1. | What would be the effective interest rate in part d if the interest charge for 54 days were $15,900?(Use a 360-day year. Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) |
| Effective rate of interest | % |
| e-2. | Should the firm borrow with the 20 percent compensating balance requirement? (The firm has no funds to count against the compensating balance requirement.) |
| YesNo |
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