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What is the cost of failing to take the discount

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Problem - FP Co. buys on terms 2/10, net 30, but generally does not pay until the 40 days after invoice date. Its purchases total P2,160,000 per year. Assuming 360 days a year, the amount of "non-free" trade credit used by the firm on the average each year is?

Slipshod Machine Tool Co. owes P40,000 to one of its suppliers. The supplier has offered a trade discount of 2/10 net 30. Slipshod can borrow the funds from either of two banks: First City Bank will loan the funds for 20 days at a cost of P400; Upstart Bank offers a discounted loan for 20 days at a cost of P320.

a. What is the cost of failing to take the discount?

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

c. Should Slipshod take the cash discount?

d. Which bank loan should Slipshod use?

Reference no: EM132980399

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