Borrow to pay the supplier within the discount period

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Reference no: EM13777012

H Company needs to pay a supplier's invoice of $60,000 and wants to take a cash discount of 2/10, net 40. The firm can borrow the money for 30 days at 11% per annum. Assume a 360 day year.

1. What is the amount H Company must borrow to pay the supplier within the discount period?

2. If H Company fails to take the discount and pays on the 40th day, what effective rate of annual interest is it paying the vendor?

Reference no: EM13777012

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