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Cash Discount

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The Ogden Timber Company buys from its suppliers on terms of 2/10, net 35. Ogden has not been utilizing he discount offered and has not been taking the cash discount offered and has been taking 50 days to pay its bills. he suppliers seem to accept this payment pattern, and Ogden's credit rating has not been hurt.

Mr. Wood, Ogden timber company's vice-president has suggested that the company begin to take th discount offered. Mr wood proposes that the company borrow from its bank at a stated rate of 15 percent. The bank requires a 25r percent compensating balance on these loans. Current account balances would not be available to meet any of this compensating balance requirement. Do you agree with Mr. Wood's proposal?

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Solution Summary

The solution explains how to decide whether to take the cash discount or not.

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Cost of forgoing the cash discount:

As per the question, the terms are 2/10, net 25, so the cash ...

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