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Laura Inc. buys $ 9 million of materials ( net of discounts ) on terms of 2 / 5 , net 4 5 , and

Laura Inc. buys $9 million of materials (net of discounts) on terms of 2/5, net 45, and it currently pays on the 5th day and takes discounts. Laura plans to expand, which will require additional financing. If it decides to forgo discounts, how much additional credit could it obtain, and what would be the nominal and effective cost of that credit? If the company could get the funds from a bank at a rate of 12%, interest paid daily, based on a 365-day year, what would be the effective cost of the bank loan? Should Laura use bank debt or additional trade credit?

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