Neveready Flashlights Inc. needs $302,000 to take a cashdiscount of 2/19, net 71. A banker...

Neveready Flashlights Inc. needs $302,000 to take a cash discount of 2/19, net 71. A banker will loan the money for 52 days at an interest cost of $11,800.

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.)

b. How much would it cost (in percentage terms) if the firm did not take the cash discount but paid the bill in 71 days instead of 19 days? (Use a 360-day year. Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

c. Should the firm borrow the money to take the discount?

No
Yes

d. If the banker requires a 20 percent compensating balance, how much must the firm borrow to end up with the $302,000?

Expert Solution

jeff jeffy answered 2 years ago

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