Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Lancaster Lumber buys $8 million of materials (net of discounts) on terms of 3/5, net 70, and it currently pays on the 5 th day

Lancaster Lumber buys $8 million of materials (net of discounts) on terms of 3/5, net 70, 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. 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? CHOOSE ONE

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Fundamentals Of Contemporary Financial Management

Authors: R. Charles Moyer, James R. McGuigan, Ramesh P. Rao

2nd Edition

0324406363, 978-0324406368

More Books

Students also viewed these Finance questions

Question

Why do you think most employers opt for the home-based salary plan?

Answered: 1 week ago