The Reynolds Corporation buys from its suppliers on terms of $2/12,$ net $45.$ Reynolds has not been utilizing the discounts offered and has been taking $45$ days to pay its bills.

Ms$.$ Duke, Reynolds Corporation's vice president, has suggested that the company begin to take the discounts offered. Duke proposes that the company borrow from its bank at a stated rate of $16$ percent. The bank requires a $11$ percent compensating balance on these loans. Current account balances would not be available to meet any of this compensating balance requirement.

Calculate the cost of not taking a cash discount.

Note: Use a $360-$day year. Do not round intermediate calculations. Input your answer as a percent rounded to $2$ decimal places.

What is the effective rate of interest on the bank loan?

Note: Use a $360-$day year. Do not round intermediate calculations. Input your answer as a percent rounded to $2$ decimal places.

Do you agree with Duke's proposal?

multiple choice

Yes

No