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Neveready Flashlights Inc. needs $470,000 to take a cash discount of 2/10, net 60 . A banker will loan the money for 50 days at
Neveready Flashlights Inc. needs $470,000 to take a cash discount of 2/10, net 60 . A banker will loan the money for 50 days at an interest cost of \$7,200. a. What is the annual rate on the bank loan? [2 marks] (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.) Annual rate % b. How much would it cost (in percentage terms) if the firm did not take the cash discount, but paid the bill in 60 days instead of 10 days? [2 marks] (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.) Cost of not taking a cash discount \% c. Should the firm borrow the money to take the discount? [1 mark] No Yes d. If the banker requires a 15 percent compensating balance, how much must the firm borrow to end up with the $470,000 ? [ 2 marks] (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.) Amount to be borrowed $ e-1. What would be the effective interest rate in part d if the interest charge for 50 days were $10,300 ? [2 marks] (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.) Annual rate % e-2. Should the firm borrow with the 20 percent compensating balance? [ 1 mark] (The firm has no funds to count against the compensating balance requirement.) No Yes
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