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How much is the cost of failing to take the discount

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Q1. Olivia Company buys on terms 2/10, net 30, but generally does not pay until the 40 days after invoice date. Its purchases total is $2,160,000 per year. Assuming 360 days a year, how much is the amount of "non-free" trade credit used by the firm on the average each year?

Q2. Rodrigo Company owes $40,000 to one of its suppliers. The supplier has offered a trade discount of 2/10 net 30. Rodrigo Company can borrow the funds from either of two banks: Metrobank will loan the funds for 20 days at a cost of $400; Chinabank offers a discounted loan for 20 days at a cost of $320.

a. How much is the cost of failing to take the discount?

b. How much is the effective interest rate on each of the loans?

c. Should Rodrigo Company take the cash discount?

d. What bank loan should Rodrigo Company use?

Reference no: EM132979108

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