Assume the credit terms offered to your firm by your suppliers are 2/10, net 50. Calculate the cost of the trade credit if your firm does not take the discount and pays on day 50. (Hint: Use a 365-day year.)The main reason that your firm has to pass on the discount and pay on the last allowed day (day 40), is lack of liquidity. The CFO is debating whether to borrow from a local bank, so that your firm has the cash sooner to take advantage of the trade credit. The best interest rate your firm can get from the local bank is 20% EAR. Should your firm borrow from the bank to take advantage of the trade credit? I got the correct answer to be 20.25% i need help on the steps to get this answer.
Assume the credit terms offered to your firm by your suppliers are 2/10, net 50. Calculate the cost of the trade credit if your firm does not take the discount and pays on day 50. (Hint: Use a 365-day year.)The main reason that your firm has to pass on the discount and pay on the last allowed day (day 40), is lack of liquidity. The CFO is debating whether to borrow from a local bank, so that your firm has the cash sooner to take advantage of the trade credit. The best interest rate your firm can get from the local bank is 20% EAR. Should your firm borrow from the bank to take advantage of the trade credit? I got the correct answer to be 20.25% i need help on the steps to get this answer.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Assume the credit terms offered to your firm by your suppliers are 2/10, net 50. Calculate the cost of the trade credit if your firm does not take the discount and pays on day 50. (Hint: Use a 365-day year.)
The main reason that your firm has to pass on the discount and pay on the last allowed day (day 40), is lack of liquidity. The CFO is debating whether to borrow from a local bank, so that your firm has the cash sooner to take advantage of the trade credit. The best interest rate your firm can get from the local bank is 20% EAR. Should your firm borrow from the bank to take advantage of the trade credit?
I got the correct answer to be 20.25% i need help on the steps to get this answer.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education