Question
Management is considering a change in its credit policy from terms of net 30 to terms of 2/30, net 90 to attract more customers. The
Management is considering a change in its credit policy from terms of net 30 to terms of 2/30, net 90 to attract more customers. The firm is able to borrow from OCBC Bank at 12% per year, where interest is charged monthly.
Calculate the effective annual rate (EAR) of
(i) extending cash discount and
(ii) borrowing from OCBC Bank.
Advise management if they should proceed to change its credit terms.
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Answer 1 Cash discounts are incentives offered by sellers that reduce the amount that the buyer owes ...
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Fundamentals of Corporate Finance
Authors: Stephen A. Ross, Randolph W. Westerfield, Bradford D.Jordan
8th Edition
978-0073530628, 978-0077861629
