1. A supplier is offering your firm a cash discount of 2 percent if purchases are paid for within ten days; otherwise the bill is due at the end of sixty dats. Would you recommend borrowing from a bank at an 18 percent annual interest rate to take advantage of the cash discount offer? explain your answer.
2. Assume that you have been offered cash discounts on merchandise that can be purchased fromm either of two suppliers. Supplier A offers trade credit terms of 3/20, net 70, while supplier B offers 4/15, net 80. What is the approximate effective cost of missing the cash discounts from each supplier? If you could not take advantage of either cash discount offer, which supplier would you select?
3. Bank A offers loans with a 10 percent stated annual rate and a 10 percent compensating balance. You with to obtain $250,000 in a six month loan.
a. How much must you borrow to obtain $250,000 in usable funds? Assume you currently do not have any funds on deposit at the bank. What is the effective annual rate on a six month loan?
b. How much must you borrow to obtain $250,000 in usable funds if you currently have 10,000 on deposit at the bank? What is the effective annual rate on a six month loan?
c. How much must you borrow to obtain $250,000 in usable funds if yhou currently have $30,000 on deposit at the bank?
d. What is the effective annual rate on a six month loan?
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