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The Reynolds Company buys from its suppliers on terms of 3/10, net 5 been taking 71 days to pay its bills. The suppliers seem to accept this p Mr. Duke, Reynolds Company's vice-president, has suggested that the the company borrow from its bank at a stated rate of 15 percent. The b loans. Current account balances would not be available to meet any of a. Calculate the cost of not taking a cash discount. (Use 365 days in a answer to 2 decimal places.) Cost of not taking a cash discount

The Reynolds Company buys from its suppliers on terms of 3/10, net 5 been taking 71 days to pay its bills. The suppliers seem to accept this p Mr. Duke, Reynolds Company's vice-president, has suggested that the the company borrow from its bank at a stated rate of 15 percent. The b loans. Current account balances would not be available to meet any of a. Calculate the cost of not taking a cash discount. (Use 365 days in a answer to 2 decimal places.) Cost of not taking a cash discount

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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The Reynolds Company buys from its suppliers on terms of 3/10, net 59. Reynolds has not been utilizing the discount offered and has been taking 71 days to pay its bills. The suppliers seem to accept this payment pattern, and Reynold's credit rating has not been hurt. Mr. Duke, Reynolds Company's vice-president, has suggested that the company begin to take the discount offered. Mr. Duke proposes the company borrow from its bank at a stated rate of 15 percent. The bank requires a 12 percent compensating balance on these loans. Current account balances would not be available to meet any of this required compensating balance. a. Calculate the cost of not taking a cash discount. (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.) Cost of not taking a cash discount 1% b. Calculate the annual rate of Interest if the company borrow from the bank. (Use 365 days in a year. Do not round Intermediate calculations. Round the final answer to 2 decimal places.) Annual rate of Interest % c. Do you agree with Mr. Duke's proposal? O Yes O No
Transcribed Image Text:The Reynolds Company buys from its suppliers on terms of 3/10, net 59. Reynolds has not been utilizing the discount offered and has been taking 71 days to pay its bills. The suppliers seem to accept this payment pattern, and Reynold's credit rating has not been hurt. Mr. Duke, Reynolds Company's vice-president, has suggested that the company begin to take the discount offered. Mr. Duke proposes the company borrow from its bank at a stated rate of 15 percent. The bank requires a 12 percent compensating balance on these loans. Current account balances would not be available to meet any of this required compensating balance. a. Calculate the cost of not taking a cash discount. (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.) Cost of not taking a cash discount 1% b. Calculate the annual rate of Interest if the company borrow from the bank. (Use 365 days in a year. Do not round Intermediate calculations. Round the final answer to 2 decimal places.) Annual rate of Interest % c. Do you agree with Mr. Duke's proposal? O Yes O No
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