The Orange Corporation buys from its suppliers on terms 2/10, net 55. Orange has not been utilizing the discounts offered and has been taking 55 days to pay its bills.

Mr. Ponkan, Orange Corporation Vice President, has suggested that the company begin to take the discounts offered. Mr. Ponkan proposes that the company borrow from its bank at a stated rate of 14%. The bank requires a 20% 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. Ponkan's proposal?