eBook Problem Walk$-$Through

Lancaster Lumber buys $$8$ million of materials $($net of discounts$)$ on terms of $3/5,$ net $30,$ 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.

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 $5,000,000.$ Do not round intermediate calculations. 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?

$-$Select$-$