Corporate Finance Plus MyLab Finance with Pearson eText -- Access Card Package (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series)
4th Edition
ISBN: 9780134408897
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Question
Chapter 26, Problem 13P
Summary Introduction
To determine: Whether Person S has to take the loan and get the benefits from discounts offered.
Introduction:
Trade credit is an offering given by the suppliers to the firm. When supplier agrees to deliver the products and gives a specified time period for the payment, the supplier will tend to give some sort of percentage as a credit discount to the firm, if the payment is made within the specific period.
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Simple Simon’s Bakery purchases supplies on terms of 1/10, Net 25. If Simple Simon’s chooses to take the discount offered, it must obtain a bank loan to meet its short-term financing needs. A local bank has quoted Simple Simon’s owner an interest rate of 12% on borrowed funds and no origination fees. Should Simple Simon’s enter the loan agreement with the bank in order to begin taking the discount?
Simple Simon's Bakery purchases supplies on terms of 1.7/10, net 25. If Simple Simon's chooses to take the
discount offered, it must obtain a bank loan to meet its short-term financing needs. A local bank has quoted
Simple Simon's owner an interest rate of 11.6% on borrowed funds. Should Simple Simon's enter the loan agreement
with the bank and begin taking the discount? (Use 365 days for a year.)
Simple Simon's can earn an effective rate of %. (Round to one decimal place.)
Simple Simon's Bakery purchases supplies on terms of 1.7/10, net 25. If Simple Simon's chooses to take the discount offered, it must obtain a bank loan to meet its short-term financing needs. A
local bank has quoted Simple Simon's owner an interest rate of 10.2% on borrowed funds. Should Simple Simon's enter the loan agreement with the bank and begin taking the discount? (Hint: Use
365 days for a year.)
The cost of forgoing the discount is %. (Round to one decimal place.)
Should Simple Simon's enter the loan agreement with the bank and begin taking the discount? (Select the best choice below.)
A. Simple Simon's should enter into the loan agreement with the bank and begin taking the discount.
B. Simple Simon's should not enter into the loan agreement but should begin taking the discount.
C. Simple Simon's should enter into the loan agreement but not begin taking the discount.
D. Need more information to answer the question.
Chapter 26 Solutions
Corporate Finance Plus MyLab Finance with Pearson eText -- Access Card Package (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series)
Ch. 26.1 - What is the firms cash cycle? How does it differ...Ch. 26.1 - How does working capital impact a firms value?Ch. 26.2 - Prob. 1CCCh. 26.2 - Prob. 2CCCh. 26.3 - Prob. 1CCCh. 26.3 - Prob. 2CCCh. 26.4 - What is accounts payable days outstanding?Ch. 26.4 - What are the costs of stretching accounts payable?Ch. 26.5 - What are the benefits and costs of holding...Ch. 26.5 - Prob. 2CC
Ch. 26.6 - Prob. 1CCCh. 26.6 - Prob. 2CCCh. 26 - Prob. 1PCh. 26 - Prob. 2PCh. 26 - Aberdeen Outboard Motors is contemplating building...Ch. 26 - Prob. 4PCh. 26 - Prob. 5PCh. 26 - Prob. 6PCh. 26 - The Fast Reader Company supplies bulletin board...Ch. 26 - Prob. 8PCh. 26 - Prob. 9PCh. 26 - Prob. 10PCh. 26 - The Mighty Power Tool Company has the following...Ch. 26 - What is meant by stretching the accounts payable?Ch. 26 - Prob. 13PCh. 26 - Your firm purchases goods from its supplier on...Ch. 26 - Use the financial statements supplied on the next...Ch. 26 - Prob. 16PCh. 26 - Which of the following short-term securities would...
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