Regis Clothiers can borrow from its bank at 11 percent to take a cash discount.
ID: 2761953 • Letter: R
Question
Regis Clothiers can borrow from its bank at 11 percent to take a cash discount. The terms of the cash discount are 2/15, net 60. Should the firm borrow the funds? Simmons Corp. can borrow from its bank at 12 percent to take a cash discount. The terms of the cash discount are 1.5/10, net 60. Should the firm borrow the funds? Your bank will lend you $2,000 for 45 days at a cost of $25 interest. What is your effective rate of interest? A pawn shop will lend $100 for 10 days at a cost of $5 interest. What is the effective rate of interest? Sol Pine is going to borrow $3,000 for one year at 8 percent interest. What is the effective rate of interest if the loan is discounted? Mary Ott is going to borrow $5,000 for 90 days and pay $140 interest. What is the effective rate of interest if the loan is discounted? Dr. Ruth is going to borrow $5,000 to help write a book. The loan is for one year and the money can either be borrowed at the prime rate or the LIBOR rate.Assume the prime rate is 6 percent and LIBOR 1.5 percent less. Also added to the interest cost with LIBOR).Explanation / Answer
The regies clothier has a cash discount model of 2/15 net 60 means suppose he has to pay $1000 he will get 2% discount if he pays within 15 days and full amount if he pays within 60 days . We have to calculate the interest to be paid to bank for 15 days if it borrows. Given the interest rate is 11% per annum
Let us calculate the cash discount if paid within 15 days for $1000 is 2% the value would be
= 1000 * 2%
=$ 20
Let us calculate the interest paid to bank for 15 days for 11% per annum rate and consider 360 days in a year
= (1000 * 11%)/360 * 15
=110/360 * 15
= $ 4.58
The cash discount is more than interest paid so it is advisable to take fund from bank for 15 days
The simons corp has a cash discount model of 1.5/10 net 60 means suppose he has to pay $1000 he will get 1.5% discount if he pays within 10 days and full amount if he pays within 60 days . We have to calculate the interest to be paid to bank for 10 days if it borrows. Given the interest rate is 12% per annum
Let us calculate the cash discount if paid within 10 days for $1000 is 1.5% the value would be
= 1000 * 1.5%
=$ 15
Let us calculate the interest paid to bank for 10 days for 12% per annum rate and consider 360 days in a year
= (1000 * 12%)/360 * 10
=120/360 * 15
= $ 3.33
The cash discount is more than interest paid so it is advisable to take fund from bank for 10days