Sources and Uses of Short and Long Term Funds

A. On February 14, 2022, Doming Knows Company purchased 900,000 worth of raw materials from its main supplier. Doming Knows received credit terms of 3/20, net 60. Doming Knows operates 360 days a year. The supplier is extending fresh credit terms of 2/10 net 30 for the purchase transaction to Doming Knows three days after the original credit terms expired. Doming Knows has the option of choosing the new credit term of 2/10 net 30 or the previous credit term of 3/20, net 60, according to the supplier.

Solve the following:

Calculate the net financial gain that Doming Knows will have if he takes the cash discount by paying during the discount period and using bank borrowing as a source of money for the remaining 40 days based on your response 3 and assuming that the current interest rate of the bank is 20%. (6 points)