Your company has purchased inventory on terms of a cash discount if your company can pay within a certain amount of days, 2/16 net 90. Your cash flows are such that you cannot pay within the discount date of the terms but can pay within the 90 days. Your company has a line of credit with its bank and can borrow funds from the bank at 15 percent per annum.

a. Calculate the cost or interest rate applied if your company does not take the cash discount. Show all your calculations for full marks. (4 marks) Answer:

b. Should your company borrow the funds from the bank to pay the purchase within the discount period? Using your calculations above to support your answer. (3 marks)