The Reynolds Company buys from its suppliers on terms of 3/10, net 53. Reynolds has not been utilizing the discount offered and has been taking 65 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 17 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.)
The Reynolds Company buys from its suppliers on terms of 3/10, net 53. Reynolds has not been utilizing the discount offered and has been taking 65 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 17 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.)
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
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Transcribed Image Text:The Reynolds Company buys from its suppliers on terms of 3/10, net 53. Reynolds has not been utilizing the discount offered and has
been taking 65 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 17 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
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