Question
The Gibson Corp. buys from its suppliers on terms of 3.5/19, net 48. Gibson has not been utilizing the discounts offered and has been taking
The Gibson Corp. buys from its suppliers on terms of 3.5/19, net 48. Gibson has not been utilizing the discounts offered and has been taking 48 days to pay its bills. Mr. Guekian, Gibsons VP, has suggested that the company borrow from the bank at a 36% annual interest, with a 27% compensating balance, to take advantage of the supplier discounts. Current account balances do not count towards meeting the compensating balance requirement. Answer the following: what is the supplier financing effective cost?; should Gibson do what Mr. Guekian is suggesting?
None of the above/below answers.
supplier financing effective cost is 49.32%; Gibson should take Guekians suggestion
supplier financing effective cost is 45.02%; Gibson should not take Guekians suggestion
supplier financing effective cost is 27.41%; Gibson should take Guekians suggestion
supplier financing effective cost is 31.51%; Gibson should not take Guekians suggestion
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