COST OF TRADE CREDIT AND BANK LOAN Lamar Lumber buys $8 million of materials

(net of discounts) on terms of 3 5, net 60; and it currently pays on the 5th day and takes discounts. Lamar plans to expand, which will require additional financing. If Lamar decides to forgo discounts, how much additional credit could it obtain and what would be the nominal and effective cost of that credit? If the company could get the funds from a bank at a rate of 10%, interest paid monthly, based on a 365-day year, what would be the effective cost of the bank loan? Should Lamar use bank debt or additional trade credit? Explain.

AppendixL01