1. Brand Advertising is offered a 3/10 net 40 trade discount by its supplier. In the past Brand has been able to get away with paying for supplies on credit in 60 days. Since it doesn't have money on hand to take advantage of the discount, it tries to negotiate a loan with Second Canadian Bank. The amount of $375,000 with a 15% compensating balance and a $5,500 interest charge has been negotiated for the month of May. Brand already maintains a $16,250 balance at the bank.(6 Marks)
   1. Required. Compute the annual rate of interest on the loan, and the cost of not taking the discount. Which one should Brand take?
2. Slipshod Machine Tool Co. owes $40,000 to one of its suppliers. The supplier has offered a trade discount of 2/10 net 30. Slipshod can borrow the funds from either of two banks. First City Bank will loan the funds for 20 days at a cost of $400. Upstart Bank offers a discounted loan for 20 days at a cost of $320. (7 Marks)
   1. What is the cost of failing to take the discount?(2)
   2. What is the annual interest rate on each of the loans?(4)
   3. Which alternative should Slipshod follow?(1)
3. The Magic Pumpkin Limousine Company wants to purchase a car telephone system for one of its automobiles. The telephone vendor has offered to finance the $1,500 purchase over one year in 12 instalments, with a total of $140 in interest to be paid on the loan. Magic Pumpkin's bank has offered to finance the purchase with an instalment loan, where $155 in interest will be repaid and payments on the loan must be made quarterly. (5 Marks)
   1. Required.What are the annual interest rates on these loans?Which Bank should the company go with?