Billy Madison Corporation purchases merchandise on account from various suppliers. Each supplier has different credit terms. Billy Madison does not take any cash discounts but always pays invoices on the last day of the credit period to avoid any finance charges for late payments. Management is reviewing this policy to determine whether suppliers should be paid within the cash discount periods. The company's major suppliers have been identified by reviewing the purchase records. The average monthly purchases on account and the respective credit terms for each supplier are as follows. Average Monthly Credit Supplier Purchases Terms Fort Co. P 450,000 2/10, n/30 Jester Co. 375,000 1/15, n/30 Jam Co. 525,000 n/30 Smitt & Co. 150,000 5/10, n/120 P1,500,000 REQUIRED: a. Determine the average effective annual interest rate associated with Billy Madison Corporation's policy of foregoing all cash discounts and paying all invoices on the last day of the credit period. Use a 360-day year in your calculations. b. Would management use the information derived in Requirement a to determine when it should borrow funds to take advantage of suppliers' cash discounts? Explain your answer. c. Billy Madison's treasurer has suggested that arrangements be made for a line of credit if purchases are to be financed. 1. What is a line of credit? 2. Is a line of credit appropriate in this situation? Explain your