Question
Simple Simon's Bakery purchases supplies on terms of 1.2/10, net 30.If Simple Simon's chooses to take the discount offered, it must obtain a bank loan
Simple Simon's Bakery purchases supplies on terms of 1.2/10, net 30.If Simple Simon's chooses to take the discount offered, it must obtain a bank loan to meet its short-term financing needs. A local bank has quoted Simple Simon's owner an interest rate of 11.5% on borrowed funds. Should Simple Simon's enter the loan agreement with the bank and begin taking the discount? (Use 365 days for a year.)
Simple Simon's can earn an effective rate of____% (Round to one decimal place.)
Should Simple Simon's enter the loan agreement with the bank and begin taking the discount? (Select the best choice below.)
A.Simple Simon's will earn 24.6 % on its purchases by paying within the discount period and should enter into the loan agreement.
B.Simple Simon's will earn 15.8% on its purchases by paying within the discount period and should enter into the loan agreement.
C.The discount rate of 1.2 % is considerably lower than the 11.5% interest rate, so Simple Simon's should not enter into the loan agreement.
D. Need more information to answer the question.
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