1. The Gin Kings Company buys from its suppliers on terms of 2/10, net 35. Gin Kings has not been utilizing the discount offered and has been taking 50 days to pay its bills. The suppliers seem to accept this payment pattern, and Gin King's credit rating has not been hurt.

Mr. Thompson, Gin Kings Company's vice-president, has suggested that the company begin to take the discount offered. Mr. Thompson proposes that the company borrow from its bank at a stated rate of 15 percent. The bank requires a 25 percent compensating balance on these loans. Current account balances would not be available to meet any of this compensating balance requirement. Do you agree with Mr. Thomson's proposal? Using problem 2, if the compensating balance requirement were 10 percent instead of 25 percent, would you change your answer? Do the appropriate calculation.