Why do you agree with mrs. jacksons proposal

Reference no: EM133332227

Question: The Fifty Penney Company buys from its suppliers on terms of 3/10, net 60. Penney has not been utilizing the discount offered and has been taking 75 days to pay its bills. The suppliers seem to accept this payment pattern, and Penney's credit rating has not been hurt. Mrs. Jackson, the company's CFO, has suggested that the company begin to take the discount offered. Mrs. Jackson proposes the company borrow from its bank at a stated rate of 14 percent. The bank requires a 13 percent compensating balance on these loans. Current account balances would not be available to meet any of this required compensating balance.

Compute the cost of not taking the discount, and the annual rate of interest on the loan. Do you agree with Mrs. Jackson's proposal?

Reference no: EM133332227

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