1). MMY Company purchased a new machine for RM1,000,000 on credit. The supplier has offered the term of credit of 2/10, net 45. The current interest rate the bank is offering is 16 percent.

(a) Calculate the cost of not accepting cash discount.

(b) Should the firm take or give up the cash discount?

(c) What is the effective rate of interest if the firm decides to take the cash discount by borrowing money on a discount basis?

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