Lancaster Lumber buys $8 million of materials (net of discounts) on terms 3/5, net 55, and...

Lancaster Lumber buys $8 million of materials (net of discounts) on terms 3/5, net 55, and it currently pays on the 5th day and takes discounts. Lancaster plans to expand, which will require additional financing. If Lancaster decides to forgo discounts, how much additional credit could it obtain, and what would be the nominal and effective cost of that credit? If the company could get the funds from a bank at a rate of 9%, interest paid monthly, based on a 365-day year, what would be the effective cost of the bank loan? Should Lancaster use bank debt or additional trade credit? Explain.

Expert Solution

jeff jeffy answered 17 hours ago

Lancaster Lumber buys $8 million of materials (net of discounts) on terms of 3/5, net 75;...

Lancaster Lumber buys $8 million of materials (net of discounts) on terms of 3/5, net 75; and it currently pays on the 5th day and takes discounts. Lancaster plans to expand, which will require additional financing. Assume 365 days in year for your calculations. If Lancaster decides to forgo discounts, how much additional credit could it obtain? Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest cent. What would...

Lancaster Lumber buys $8 million of materials (net of discounts) on terms of 3/5, net 60;...

Lancaster Lumber buys $8 million of materials (net of discounts) on terms of 3/5, net 60; and it currently pays on the 5th day and takes discounts. Lancaster plans to expand, which will require additional financing. Assume 365 days in year for your calculations. If Lancaster decides to forgo discounts, how much additional credit could it obtain? Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest cent. $ What...

Lancaster Lumber buys $8 million of materials (net of discounts) on terms of 3/5, net 85;...

Lancaster Lumber buys $8 million of materials (net of discounts) on terms of 3/5, net 85; and it currently pays on the 5th day and takes discounts. Lancaster plans to expand, which will require additional financing. Assume 365 days in year for your calculations. If Lancaster decides to forgo discounts, how much additional credit could it obtain? Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest cent. $ What...

Adams Manufacturing Inc. buys $11.4 million of materials (net of discounts) on terms of 2/10, net...

Adams Manufacturing Inc. buys $11.4 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? Enter your answer as a positive value. Do not round intermediate calculations. Round your answer to the nearest cent. Use 365 day in a year. ? $ What would be...

Adams Manufacturing Inc. buys $11.9 million of materials (net of discounts) on terms of 2/10, net...

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...

Quantitative Problem: Adams Manufacturing Inc. buys $8.5 million of materials (net of discounts) on terms of...

Quantitative Problem: Adams Manufacturing Inc. buys $8.5 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...

Quantitative Problem: Adams Manufacturing Inc. buys $9 million of materials (net of discounts) on terms of...

Quantitative Problem: Adams Manufacturing Inc. buys $9 million of materials (net of discounts) on terms of 2/10, net 60; 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? Round your answer to the nearest cent. Do not round intermediate calculations. Use 365 day in a year. $ What would be the nominal and effective cost of...

The Reynolds Corporation buys from its suppliers on terms of 3/18, net 55. Reynolds has not...

The Reynolds Corporation buys from its suppliers on terms of 3/18, net 55. Reynolds has not been utilizing the discounts offered and has been taking 55 days to pay its bills. Mr. Duke, Reynolds Corporation vice president, has suggested that the company begin to take the discounts offered. Duke proposes that the company borrow from its bank at a stated rate of 18 percent. The bank requires a 10 percent compensating balance on these loans. Current account balances would not...

Lewis Lumber is considering changing its credit terms from net 55 to net 30 to bring...

Lewis Lumber is considering changing its credit terms from net 55 to net 30 to bring its terms in line with other firms in the industry. Currently, annual sales are $360,000, and the average collection period (DSO) is 62 days. Lewis estimates that tightening the credit terms would reduce annual sales to $355,000, but accounts receivable would drop to 38 days of sales. Lewis’ variable cost ratio is 65 percent and its average cost of funds is 12 percent. Should...

Leyton Lumber Company has sales of $8 million per year, all on credit terms calling for...

Leyton Lumber Company has sales of $8 million per year, all on credit terms calling for payment within 30 days, and its accounts receivable are $1.6 million. Assume 365 days in year for your calculations. What is Leyton's DSO? Round your answer to two decimal places. What would DSO be if all customers paid on time? Round your answer to two decimal places. How much capital would be released if Leyton could take actions that led to on-time payments? Round...

Question