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Problem:

A company buys $10 million of materials (net of discount) on terms 3/5, net 60, and it currently pays on the 5th day & takes discounts. The company plans to expand, which will mean add'l financing.

1) If the company decides to forgo discounts, could it obtain much add'l credit?

2) What would be the nominal & effective cost of that credit?

3) What would be the effective cost of the bank loan if the company could get the funds from a bank at a rate of 8% and if the interest was paid monthly? All of this should be based on 365 day year.

4) Should the company use bank debt or add'l trade credit? Why. Please provide step by step solution.

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M91146151

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