Question 2:
3. Using the same information from Question 2, determine if the firm should borrow to take the discount Assume: The firm has access to short-term credit at 8%. If the iskrc, the firm should borrow to take the discount. If the io > kic, the firm should forego the discount. . Supplier 1 Supplier 2 Supplier 3 Supplier 4 1.5/15, met 50 1/10, met 60 5/5, net 45 2/10, met 30 Annual Borrowing Rate (l>) 99 89 8% 8% Annualized Cash Discount Rate (krc) [d/(1-2) (365/(CPDP) Borrow To Take Discount (Y / N) 4. Look up the current Prime Rate and 30-day Commercial Paper rate online or in the paper. Compare each to the annualized cash discount rate (krc) for 2/10, net 30. Evaluate whether to borrow at the current Prime or Commercial Paper rates or take the discount calculated above for the 2/10, net 30 offer made by Supplier 4. . Assume: The firm has no access to short-term credit. If i krc, the firm should keep the cash invested. Supplier 3 Supplier 4 Supplier 1 Supplier 2 5/5, net 45 2/10, net 30 1.5/15, net 50 1/10, net 60 Discount Period (DP) Credit Period (CP) Cash Discount Rate (d) 10% 10% 10% 10% Annual Investment Opportunity Rate (0) N/A N/A N/A NA Annual Borrowing Rate (is) Annualized Cash Discount Rate (krc) [d /(1-d )] [365 (CP-DP)] Take Discount (Y / N) 3. Using the same information from Question 2, determine if the firm should borrow to take the discount Assume: The firm has access to short-term credit at 8%. If the iskrc, the firm should borrow to take the discount. If the io > kic, the firm should forego the discount. . Supplier 1 Supplier 2 Supplier 3 Supplier 4 1.5/15, met 50 1/10, met 60 5/5, net 45 2/10, met 30 Annual Borrowing Rate (l>) 99 89 8% 8% Annualized Cash Discount Rate (krc) [d/(1-2) (365/(CPDP) Borrow To Take Discount (Y / N) 4. Look up the current Prime Rate and 30-day Commercial Paper rate online or in the paper. Compare each to the annualized cash discount rate (krc) for 2/10, net 30. Evaluate whether to borrow at the current Prime or Commercial Paper rates or take the discount calculated above for the 2/10, net 30 offer made by Supplier 4. . Assume: The firm has no access to short-term credit. If i krc, the firm should keep the cash invested. Supplier 3 Supplier 4 Supplier 1 Supplier 2 5/5, net 45 2/10, net 30 1.5/15, net 50 1/10, net 60 Discount Period (DP) Credit Period (CP) Cash Discount Rate (d) 10% 10% 10% 10% Annual Investment Opportunity Rate (0) N/A N/A N/A NA Annual Borrowing Rate (is) Annualized Cash Discount Rate (krc) [d /(1-d )] [365 (CP-DP)] Take Discount (Y / N)