Lawrence Industries, operator of a small chain of video stores, purchased

$1,000 worth of merchandise on February 27 from a supplier extending terms

of 2/10 net 40 EOM. If the firm takes the cash discount, it must pay $980

[$1,000 - (0.02 - $1,000)] by March 10, thereby saving $20. If they decide not

to take the cash discount, what will be their cost of giving up cash discount?

If there is any available loan that requires a return of 12.5%, should the

company take the cash discount?