The Reynolds Company buys from its suppliers on terms of $3/10,$ net $61.$ Reynolds has not been utilizing the discount offered and has been taking $73$ days to pay its bills. The suppliers seem to accept this payment pattern, and Reynold$$s credit rating has not been hurt.

Mr$.$ Duke, Reynolds Company$$s vice$-$president, has suggested that the company begin to take the discount offered. Mr$.$ Duke proposes the company borrow from its bank at a stated rate of $15$ percent. The bank requires a $14$ percent compensating balance on these loans. Current account balances would not be available to meet any of this required compensating balance.