Question

Lancaster Lumber buys $8 million of materials (net of discounts) on terms of 3/5, net 55; and it currently pays on the 5^th day and takes discounts. Lancaster plans to expand, which will require additional financing. Assume 365 days in year for your calculations.

1. 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. Round your answer to the nearest cent.
   $___
2. 
   
3. What would be the nominal cost of that credit? Do not round intermediate calculations. Round your answer to two decimal places.
   ___%
4. 
   
5. What would be the effective cost of that credit? Do not round intermediate calculations. Round your answer to two decimal places.
   ___%
6. 
   
7. If the company could get the funds from a bank at a rate of 8%, 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 answer to two decimal places.
   ___%
8. Should Lancaster use bank debt or additional trade credit?
   ___

Answer 1

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ACCOUNTS latest - Microsoft Excel (Product Activation Failed) Review File Home Insert Page Layout Formulas Data View Add-Ins Σ AutoSum - Cut AC Wrap Text Calibri 11 General Copy Fill Merge & Center $ % Conditional Format Formatting as Table Styles Paste в IU* +.0 .00 .00 0 Cell Insert Delete Format Sort & Find & Format Painter Clear Filter Select Number Editing Clipboard Font Alignment Styles Cells fox IG175 IA IC ID IE IF IG IH IK IL IM 156 157 a AS COMPANY PAYS IN 5 DAYS AND GETS DISCOUNT, IF IT FORGOES DISCOUNT, IT CAN OBTAIN ADDITIONAL CREDIT SALES/365 DAYS X (TOTAL CREDIT DAYS - DISCOUNT DAYS) 158 8000000/365 X (55-5) = 159 1095890.41 160 161 b NOMINAL COST OF CREDIT ((discount /(1-discount))*(365 (final date - early date)) |((0.03/(1-0.03)*(365/(55-5)) = 162 163 22.58% 164 165 c EFFECTIVE COST OF CREDIT ((1(discount/ (1-discount))) (365 / (final date early date) |(1+(0.03/(1-0.03)^(365/(55-5)) - 1= (( 1 + 0.03093)^7.3) 1 = 1 166 167 0.24903037 24.90% 168 169 170 d BANK LOAN AT 8%, INTEREST IS PAID MONTHLY (1 +(0.08/12))A12 -1 = 8.30% 171 0.08299951 172 173 e AS THE EFFECTIVE COST OF BANK LOAN IS LOWER THAN THE COST OF TRADE CREDIT 174 THE BANK LOAN SHOULD BE USED 175 176 ove CASH BUDGET budget dupont 45 days cycle ВЕР, OL FL float B-S profit loss FIFO ROE, BV MV ratio VARIANCE ratios DETROIT SALES BUDGET DIFF ANALYSIS II Rea (- erences: R46 120% FFF WA 07:24 ENG 22-11-2019