Question
In: Finance
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 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.)
Cost of no taking a cash discount _______%
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.)
Effective rate of interest ________%
c. Do you agree with Duke's proposal?
-
No
-
Yes
Solutions
jeff jeffy answered 2 years 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 2/11, 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 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
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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...
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