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    Slipshod Machine Tool Co. owes $40,000 to one of its suppliers: effect of discount

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    32. Slipshod Machine Tool Co. owes $40,000 to one of its suppliers. The supplier has offered a trade discount of 2/10 net 30. Slipshod can borrow the funds from either of two banks: First City Bank will loan the funds for 20 days at a cost of $400; Upstart Bank offers a discounted loan for 20 days at a cost of $320.

    a) What is the cost of failing to take the discount?
    b) What is the effective interest rate on each of the loans?
    c) Which alternative should Slipshod follow?

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    https://brainmass.com/business/finance/slipshod-machine-tool-effect-discount-179476

    Solution Preview

    Please refer to the attachment.

    a. What is the cost of failing to take the discount?

    Cost of not taking a cash discount = Discount % x 360 ...

    Solution Summary

    The solution calculates the financial effects of the discount, and discusses the options.

    $2.19