How much is the cost of foregoing cash discount

Reference no: EM132984740

Problem 1

1. A Company made purchases from its supplier for P800,000. The supplier's credit term is 3/10, n/30

Required:

a. How much is the cost of foregoing cash discount? (Use 360 days in one year)!
b. Assuming the A Company does not have sufficient money available to pay its suppliers within the discount period, however it can borrow from the local bank at an interest rate of 20% per annum Should A Company borrow and pay within the discount period? Why?
c. Same information as letter (b) except that the interest of 20% is deducted in advance from the loan proceeds_ Compute the effective interest rate. Given your answer, should A Company borrow and pay within the discount period? Why?

Problem 2

Nadia Company is considering to short-term financing loans_ ABC bank offered to lend Nadia P100:000, 90-day bank loan with interest rate of 15%. Meanwhile: XYZ bank offered to lend Nadia P100:000: 16%, 120-day loan. (Note: Assume a 360-day year.)
a How- much interest (in pesos) will the firm pay on the 90-day loan from ABC bank?
b. How much interest (in pesos) will the firm pay on the 120-day loan from XYZ bank?
c. Find the annual effective rate for the 90-day and 120-day loan.
d. Assuming the company has the opportunity to invest the loan proceeds in a project that has an internal rate of return of 180.0 should the company borrow? Which bank should the company choose?

Reference no: EM132984740

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