he Reynolds Corporation buys from its suppliers on terms of 2/15, 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 21 percent. The bank requires a 29 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

he Reynolds Corporation buys from its suppliers on terms of 2/15, 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 21 percent. The bank requires a 29 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

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 19P

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