Management is debating about issuing new debt

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1. Cash discount versus loan: Joanne Germano works in an accounts payable department of a major retailer. She has attempted to convince her boss to take the discount on the 1/15 net 65 credit terms most suppliers offer, but her boss argues that giving up the 1% discount is less costly than a short term loan at 7%. Assume a 365 day year. What is the cost of giving up the discount and who is correct?

2. Over the last several years, Grainger had about $2 billion in debt on its balance sheet and an MVE of $15 billion. During this period, the estimated beta was 0.75. Management is debating about issuing new debt to that would result in a debt to equity ratio of 0.33. What would Grainger’s beta estimate be under this scenario? Assume a tax rate of 35%

Reference no: EM132019073

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