Question

Adams Manufacturing Inc. buys $11.9 million of materials (net of discounts) on terms of 2/10, net 50; and it currently pays after 10 days and takes the discounts. Adams plans to expand, which will require additional financing. If Adams decides to forgo discounts, how much additional credit could it obtain? Assume 365 days in year for your calculations. Do not round intermediate calculations. Round your answer to the nearest cent.
$   

What would be the nominal and effective cost of such a credit? Assume 365 days in year for your calculations. Do not round intermediate calculations. Round your answer to two decimal places.
Nominal cost:   %
Effective cost:   %

If the company could receive the funds from a bank at a rate of 8.2%, interest paid monthly, based on a 365-day year, what would be the effective cost of the bank loan? Do not round intermediate calculations. Round your answer to two decimal places.
  %

Answer 1

ANSWER:-

Additional credit = 11,900000 * 40 /365

=$1,304,109.58

Nominal cost =(discount rate) / (1-discount rate )) * (365 / (credit period - discount period))

=(0.02/(1-0.02)) * (365 / (50-10))

=18.62%

Effective cost = (1+(discount rate / (1- discount rate)))^ (365 / (credit period - discount period)) -1

=(1+2/98)^(365/40) -1

=20.24%

Effective rate of bank loan =(1+0.082/12)^(12)-1

=8.52%

------------------------------------------------------------

if you have any query please ask me in comment box i am here to helps you don't give direct Thumbs down.if you satisfied my work give Thumbs UP

                                                *******THANK YOU*******