**Problem Statement: Lancaster Lumber's Financial Decision-Making**Lancaster Lumber purchases $8 million of materials (net of discounts) under the terms 3/5, net 50, making payments on the 5th day to take advantage of the discounts. Lancaster is planning an expansion that requires additional financing. Assume a 365-day year for calculations. Answer the following questions:1. **Additional Credit Calculation:** - If Lancaster decides to forgo discounts, how much additional credit could it obtain? Write the full answer (e.g., 5 million as 5,000,000). Do not round intermediate calculations. Round the final answer to the nearest cent. - **Answer:** $ __________2. **Nominal Cost of Credit:** - Calculate the nominal cost of this credit. Do not round intermediate calculations. Round the answer to two decimal places. - **Answer:** __________ %3. **Effective Cost of Credit:** - Determine the effective cost of the credit. Do not round intermediate calculations. Round the answer to two decimal places. - **Answer:** __________ %4. **Effective Bank Loan Cost:** - If Lancaster could secure funds from a bank at a 9% rate, paid monthly, based on a 365-day year, what would be the effective cost of the bank loan? Do not round intermediate calculations, and round your answer to two decimal places. - **Answer:** __________ %5. **Decision on Financing:** - Should Lancaster use bank debt or additional trade credit? - **Select:** __________ (Dropdown options)This scenario provides a practical case study for evaluating trade credit versus bank financing, allowing students to apply concepts of nominal and effective interest rates, as well as financial decision-making.

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Description: **Problem Statement: Lancaster Lumber's Financial Decision-Making**Lancaster Lumber purchases $8 million of materials (net of discounts) under the terms 3/5, net 50, making payments on the 5th day to take advantage of the discounts. Lancaster is pla

As posted multiple sub parts we are answering only first three sub parts kindly repost the unanswered question as a separate question.A ) Additional credit: = ( 8000000 / 365 ) x ( 50 - 5 ) = ( 8000000 / 365 ) x 40 = 876712 Hence, Additional credit is $ 876712 B ) Nominal cost of credit: = ( 0.03 / 0.97 ) x ( 365 / 40 ) = 28.22 % C ) Effective cost of credit: = ( 1 + 0.03 / 0.97 )( 365 / 40 ) - 1 = ( 1.03092 )9.125 - 1 = 32.04 %

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Lancaster Lumber buys $8 million of materials (net of discounts) on terms of 3/5, net 50, and it currently pays on the 5th day and takes discounts. Lancaster plans to expand, which will require additional financing. Assun 365 days in year for your calculations. If Lancaster decides to forgo discounts, how much additional credit could it obtain? Write out your answer completely. For example, 5 million should be entered as 5,000,000. Do not round intermediate calculations. Rour your answer to the nearest cent. %24 What would be the nominal cost of that credit? Do not round intermediate calculations. Round your answer to two decimal places. What would be the effective cost of that credit? Do not round intermediate calculations. Round your answer to two decimal places. If the company could get the funds from a bank at a rate of 9%%, interest paid monthly, based on a 365-day year, what would be the effective cost of the bank loan? Do not round intermediate calculations. Round your ar to two decimal places. Should Lancaster use bank debt or additional trade credit? -Select-

Lancaster Lumber buys $8 million of materials (net of discounts) on terms of 3/5, net 50, and it currently pays on the 5th day and takes discounts. Lancaster plans to expand, which will require additional financing. Assun 365 days in year for your calculations. If Lancaster decides to forgo discounts, how much additional credit could it obtain? Write out your answer completely. For example, 5 million should be entered as 5,000,000. Do not round intermediate calculations. Rour your answer to the nearest cent. %24 What would be the nominal cost of that credit? Do not round intermediate calculations. Round your answer to two decimal places. What would be the effective cost of that credit? Do not round intermediate calculations. Round your answer to two decimal places. If the company could get the funds from a bank at a rate of 9%%, interest paid monthly, based on a 365-day year, what would be the effective cost of the bank loan? Do not round intermediate calculations. Round your ar to two decimal places. Should Lancaster use bank debt or additional trade credit? -Select-

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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