Reference no: EM132932023

"Ma Belle" started business exactly a year ago. Its raw material is cotton fiber and its purchase for the year amounted to $2,000,000. Over the year, the term of purchase was 2/10, net 40. As an average 40% of such sales were purchased on discount. Interest rate on short term loan is 8 % and the corporate tax rate is 40%.

Problem 1: For " Ma Belle ", the annual cost of not taking the discount is:

Select one:

a. $ 30,610
b. $ 34,260
c. $ 36,180
d. $ 32,610
e. $ 31,290

Problem 2: The cost of the bridge loan required to enable " Ma Belle " to take the discount is:

Select one:

a. $ 64,440
b. $ 59,780
c. $ 5,350
d. $ 6,750
e. $ 5,150

Problem 3: The total after-tax cost for " Ma belle " with 40% purchase on discount and 60% without discount is:

Select one:

a. $ 19,830
b. $ 20,590
c. $ 22,670
d. $ 24,760
e. none of the above