Poultry Pete’s regularly purchases laying hens. The terms of payment are 3/15 net 60. Pete is not sure they will have the $50,000 to take advantage of the discount so he has instructed his CFO to investigate different options for borrowing the $50,000. The CFO has a list of three lenders with terms as follows: Barred Rock Lending will lend money with a 45-day simple interest loan. The loan will charge interest of $1500. Leghorn Financing offers a loan with a 10% compensating balance and charges interest at 15% simple. Well summer Savings and Loan has a line of credit with an interest rate of 10% simple. There is also a commitment fee of 1% of the loan balance. a. What is the cost of not taking advantage of the discount? b. Find the cost of each 45-day loan/line of credit.
Poultry Pete’s regularly purchases laying hens. The terms of payment are 3/15 net 60. Pete is not sure they will have the $50,000 to take advantage of the discount so he has instructed his CFO to investigate different options for borrowing the $50,000. The CFO has a list of three lenders with terms as follows:
Barred Rock Lending will lend money with a 45-day simple interest loan. The loan will charge interest of $1500.
Leghorn Financing offers a loan with a 10% compensating balance and charges interest at 15% simple.
Well summer Savings and Loan has a line of credit with an interest rate of 10% simple. There is also a commitment fee of 1% of the loan balance.
a. What is the cost of not taking advantage of the discount?
b. Find the cost of each 45-day loan/line of credit.
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