Lancaster Lumber buys $8 million of materials (net of discounts) on terms of 3/5, net 40, and it currently pays on the 5th day and takes discounts. Lancaster plans to expand, which will require aditional 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. Do not round intermediate calculations. Round your answer to the nearest cent. What would be the nominal cost of that credit? Do not round intermediate calculations. Round your answer to two decimal places. % What would be the effective cost of that credit? Do not round intermediate calculations. Round your answer to two decimal places. % lations Round vour answe

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Lancaster Lumber buys $8 million of materials (net of discounts) on terms of 3/5, net 40, 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. Do not round intermediate calculations. Round
your answer to the nearest cent.
24
What would be the nominal cost of that credit? Do not round intermediate calculations. Round your answer to two decimal places.
What would be the effective cost of that credit? Do not round intermediate calculations. Round your answer to two decimal places.
%
If the company could get the funds from a bank at a rate of 12%, 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.
%
Should Lancaster use bank debt or additional trade credit?
-Select-
Transcribed Image Text:Lancaster Lumber buys $8 million of materials (net of discounts) on terms of 3/5, net 40, 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. Do not round intermediate calculations. Round your answer to the nearest cent. 24 What would be the nominal cost of that credit? Do not round intermediate calculations. Round your answer to two decimal places. What would be the effective cost of that credit? Do not round intermediate calculations. Round your answer to two decimal places. % If the company could get the funds from a bank at a rate of 12%, 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. % Should Lancaster use bank debt or additional trade credit? -Select-
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