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Rapier Fencing Inc. needs $440,000 to take a cash discount of 2/10, net 60. A banker will loan the money for 50 days at an interest cost of $6,900.
REQUIRED:
a) What is the annual rate on the bank loan?
b) How much would it cost (in percentage terms) if the firm did not take the cash discount, but paid the bill in 60 days instead of 10 days? (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.)
c) Should the firm borrow the money to take the discount? Explain your answer.
d) If the banker requires a 15 percent compensating balance, how much must the firm borrow to end up with the $440,000?
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