Question
COST OF TRADE CREDIT AND BANK LOAN Lancaster Lumber buys $8 million of materials (net of discounts) on terms of 3/5, net 75; and it
COST OF TRADE CREDIT AND BANK LOAN
Lancaster Lumber buys $8 million of materials (net of discounts) on terms of 3/5, net 75; and it currently pays on the 5th day and takes discounts. Lancaster plans to expand, which will require additional financing. Assume 365 days in year for your calculations.
- 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. $
- What would be the nominal cost of that credit? Do not round intermediate calculations. Round your answer to two decimal places. %
- What would be the effective cost of that credit? Do not round intermediate calculations. Round your answer to two decimal places. %
- If the company could get the funds from a bank at a rate of 8%, 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. %
- Should Lancaster use bank debt or additional trade credit? -
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Financial Reporting Financial Statement Analysis And Valuation A Strategic Perspective
Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
9th Edition
1711
