Question
In: Finance
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 be available to meet any of this compensating balance requirement. a. Calculate the cost of not taking a cash discount. (Use a 360-day year. Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) b. What is the effective rate of interest 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.) c. Do you agree with Duke's proposal? Yes No
Solutions
jeff jeffy answered 1 year agoRelated Solutions
The Reynolds Corporation buys from its suppliers on terms of 2/18, net 50. Reynolds has not...
The Reynolds Corporation buys from its suppliers on terms of
2/18, net 50. Reynolds has not been utilizing the discounts offered
and has been taking 50 days to pay its bills.
Ms. Duke, Reynolds Corporation's 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 15 percent compensating balance on
these loans. Current account balances would not...
The Reynolds Corporation buys from its suppliers on terms of 2/18, net 50. Reynolds has not...
The Reynolds Corporation buys from its suppliers on terms of
2/18, net 50. Reynolds has not been utilizing the discounts offered
and has been taking 50 days to pay its bills.
Ms. Duke, Reynolds Corporation's 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 15 percent compensating balance on these loans.
Current account balances would...
The Reynolds Corporation buys from its suppliers on terms of 2/17, net 65. Reynolds has not...
The Reynolds Corporation buys from its suppliers on terms of
2/17, net 65. Reynolds has not been utilizing the discounts offered
and has been taking 65 days to pay its bills.
Ms. Duke, Reynolds Corporation's 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 15 percent.
The bank requires a 10 percent compensating balance on these loans.
Current account balances would not...
The Reynolds Corporation buys from its suppliers on terms of 2/11, net 60. Reynolds has not...
The Reynolds Corporation buys from its suppliers on terms of
2/11, net 60. Reynolds has not been utilizing the discounts offered
and has been taking 60 days to pay its bills. Ms. Duke, Reynolds
Corporation's 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 16 percent. The bank
requires a 12 percent compensating balance on these loans. Current
account balances would not...
The Reynolds Company buys from its suppliers on terms of 2/10, net 58. Reynolds has not...
The Reynolds Company buys from its suppliers on terms of 2/10,
net 58. Reynolds has not been utilizing the discount offered and
has been taking 70 days to pay its bills. The suppliers seem to
accept this payment pattern, and Reynold’s credit rating has not
been hurt. Mr. Duke, Reynolds Company’s vice-president, has
suggested that the company begin to take the discount offered. Mr.
Duke proposes the company borrow from its bank at a stated rate of
11 percent. The...
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...
Orange Turtle Group buys on terms of 3.5/15, net 45 from its chief supplier. If Orange...
Orange Turtle Group buys on terms of 3.5/15, net 45 from its
chief supplier.
If Orange Turtle receives an invoice for $1,545.78, what would
be the true price of this invoice?
a. $1,491.68
b. $1,267.93
c. $1,118.76
d. $1,044.18
The nominal annual cost of the trade credit extended by the
supplier is _____.
a. 43.29%
b. 36.66%
c. 39.75%
d. 44.17%
The effective annual rate of interest on trade credit is
_______.
a. 63.72%
b. 44.82%
c. 54.00%
d. 55.08%...
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...
A grocery store buys Italian gelato from different suppliers and sells the desserts to its customers...
A grocery store buys Italian gelato from different suppliers and
sells the desserts to its customers for $5 per pint. In September,
the following purchases and sales occurred. You are to find the
COGS, ending inventory and Gross Margin using FIFO and LIFO.
September 2, purchase 30 pints at $2.50 each
September 6, purchase 20 pints at $3 each
September 20, purchase 25 pints at $4 each
September 5-8, sell 10 pints to customers
September 9-19, sell 20 pints
September...
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