Question

In: Finance

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.

  1. 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.
    $

  2. What would be the nominal cost of that credit? Do not round intermediate calculations. Round your answer to two decimal places.
    %

  3. What would be the effective cost of that credit? Do not round intermediate calculations. Round your answer to two decimal places.
    %

  4. If the company could get the funds from a bank at a rate of 7%, 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.
    %
  5. Should Lancaster use bank debt or additional trade credit?
    -Select one of the following:
    1.-Bank debt
    2.Additional trade credit

********PLEASE LABEL ALL 5ANSWERS VERY CLEARLY AND I WILL LEAVE A GOOD REVIEW. ALL PARTS ARE FOR THE SAME QUESTION********

Solutions

Expert Solution


Related Solutions

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...
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 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...
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...
Cash Discounts Suppose a firm makes purchases of $3 million per year under terms of 3/10,...
Cash Discounts Suppose a firm makes purchases of $3 million per year under terms of 3/10, net 30, and takes discounts. Assume 365 days in a year for your calculations. Do not round intermediate calculations. What is the average amount of accounts payable net of discounts? (Assume that the $3 million of purchases is net of discounts - that is, gross purchases are $3,092,784, discounts are $92,784, and net purchases are $3 million.) Round your answer to the nearest dollar....
Exercise 8-11 (Algo) Trade and purchase discounts; the grossmethod and the net method compared [LO8-3]...
Exercise 8-11 (Algo) Trade and purchase discounts; the gross method and the net method compared [LO8-3] [The following information applies to the questions displayed below.] Tracy Company, a manufacturer of air conditioners, sold 140 units to Thomas Company on November 17, 2021. The units have a list price of $450 each, but Thomas was given a 20% trade discount. The terms of the sale were 2/10, n/30. Thomas uses a perpetual inventory system. Exercise 8-11 (Algo) Part 3 3. Prepare the journal entries to...
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...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT