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Malone Feed and Supply Company buys on terms of 1 / 1 0 , net 3 0 , but it has not been taking discounts

Malone Feed and Supply Company buys on terms of 1/10, net 30, but it has not been taking discounts and has actually been paying in 60 rather than 30 days. Assume that the accounts payable are recorded at full cost, not net of discounts. Malones balance sheet follows:
Cash $ 60,000 Accounts payable $ 480,000
Accounts receivable 420,000 Notes payable 60,000
Inventory 730,000 Accruals 60,000
Current assets $ 1,210,000 Current liabilities $ 600,000
Long-term debt 175,000
Fixed assets 710,000 Common equity 1,145,000
Total assets $ 1,920,000 Total liabilities and equity $ 1,920,000
Malones suppliers are threatening to stop shipments unless the company begins making prompt payments (that is, paying within 30). The firm can borrow on a 1-year note (call this a current liability) from its bank at a rate of 16% discount interest with a 25% compensating balance required. (Malones $60,000 in cash is needed for transactions; it cannot be used as part of the compensating balance.)
How large would the accounts payable balance be if Malone takes discounts? Do not round intermediate calculations. Round your answer to the nearest dollar.
$
How large would the accounts payable balance be if it does not take discounts and pays in 30 days? Do not round intermediate calculations. Round your answer to the nearest dollar.
$
How large must the bank loan be if Malone takes discounts? Do not round intermediate calculations. Round your answer to the nearest cent.
$
How large must the bank loan be if Malone doesnt take discounts? Do not round intermediate calculations. Round your answer to the nearest cent.
$
Assuming a 360-day year, what are the nominal and effective rates of costly trade credit? Assume there is 1% discount. Do not round intermediate calculations. Round your answers to two decimal places.
Nominal rate:
%
Effective rate:
%
What is the effective rate of the bank loan? Round your answer to two decimal places.
%
Based on these costs, what should Malone do?
-Select-
Assume Malone forgoes the discount and borrows the amount needed to become current on its payables. Construct a projected balance sheet based on this decision. (Hint: You will need to include an account called prepaid interest under current assets.) Do not round intermediate calculations. Round your answers to the nearest dollar.
Cash $
Accounts payable $
Accounts receivable
Notes payable
Inventory
Accruals
Prepaid interest
Total current assets $
Total current liabilities $
Fixed assets
Long-term debt
Common equity
Total assets $
Total liabilities and equity $
Now assume that the $480,000 shown on the balance sheet is recorded net of discounts. How much would Malone have to pay its suppliers in order to reduce its accounts payable to $240,000? Assume there is 1% discount. Do not round intermediate calculations. Round your answer to the nearest cent.
$
If Malones tax rate is 40%, then what is the effect on its net income due to the lost discount when it reduces its accounts payable to $240,000? Do not round intermediate calculations. Round your answer to the nearest cent.
$
How much would Malone have to borrow? (Hint: Malone will receive a tax deduction due to the lost discount, which will affect the amount it must borrow.) Do not round intermediate calculations. Round your answer to the nearest cent.
$
Construct a projected balance sheet based on this scenario. (Hint: You will need to include an account called prepaid interest under current assets and then adjust retained earnings by the after-tax amount of the lost discount.) Do not round intermediate calculations. Round your answers to the nearest dollar.
Cash $
Accounts payable $
Accounts receivable
Notes payable
Inventory
Accruals
Prepaid interest
Total current assets $
Total current liabilities $
Fixed assets
Long-term debt
Common equity
Total assets $
Total liabilities and equity $

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