COST OF TRADE CREDIT AND BANK LOAN

Lancaster Lumber buys $$8$ million of materials $($net of discounts$)$ on terms of $\frac{3}{5},$ net $40$ ; and it currently pays on the $5^{th}$ day and takes discounts. Lancaster plans to expand, which

will require additional financing. Assume $365$ days in year for your calculations.

a$.$ If Lancaster decides to forgo discounts, how much additional credit could it obtain? Write out your answer completely. For example, $5$ million should be entered as

$5,000,000.$ Round your answer to the nearest cent.

$?$

b$.$ What would be the nominal cost of that credit? Do not round intermediate calculations. Round your answer to two decimal places.

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c$.$ What would be the effective cost of that credit? Do not round intermediate calculations. Round your answer to two decimal places.

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d$.$ If the company could get the funds from a bank at a rate of $11\%,$ interest paid monthly, based on a $365-$day year, what would be the effective cost of the bank loan? Do

not round intermediate calculations. Round your answer to two decimal places.

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e$.$ Should Lancaster use bank debt or additional trade credit?