The Reynolds Corporation buys from its suppliers on terms of $2/13,$ net $55.$ Reynolds has not been utilizing the discounts offered and has been taking $55$ 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 $22$ percent. The bank requires a $26$ 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.

Calculate the effective rate of interest if the company borrows from the bank.

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

No

Yes