Simple Simon's Bakery purchases supplies on terms of 1.7/10, net 25. If Simple Simon's chooses to take the discount offered, it must obtain a bank loan to meet its short-term financing needs. Alocal bank has quoted Simple Simon's owner an interest rate of 10.2% on borrowed funds. Should Simple Simon's enter the loan agreement with the bank and begin taking the discount? (Hint: Use365 days for a year.)The cost of forgoing the discount is %. (Round to one decimal place.)Should Simple Simon's enter the loan agreement with the bank and begin taking the discount? (Select the best choice below.)A. Simple Simon's should enter into the loan agreement with the bank and begin taking the discount.B. Simple Simon's should not enter into the loan agreement but should begin taking the discount.C. Simple Simon's should enter into the loan agreement but not begin taking the discount.D. Need more information to answer the question.

The discount rate refers to the interest rate used to calculate the present value of the future…

Answered: Simple Simon's Bakery purchases…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 19P

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Simple Simon's Bakery purchases supplies on terms of 1.7/10, net 25. If Simple Simon's chooses to take the discount offered, it must obtain a bank loan to meet its short-term financing needs. A local bank has quoted Simple Simon's owner an interest rate of 11.6% on borrowed funds. Should Simple Simon's enter the loan agreement with the bank and begin taking the discount? (Use 365 days for a year.) Simple Simon's can earn an effective rate of %. (Round to one decimal place.)
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