Solved – Boles Corporation needs to raise $500,000 for one year to supply capital to a new store. Boles buys from its suppliers on terms of 3/10, net 90

Question

Boles Corporation needs to raise $500,000 for one year to supply capital to a new store. Boles buys from its suppliers on terms of 3/10, net 90, and it currently pays on the 10th day and takes discounts, but it could forgo discounts, pay on the 90th day, and get the needed $500,000 in the form of costly trade credit. Alternatively, Boles could borrow from its bank on a 12 percent discount interest rate basis. What is effective annual interest rate of the lower-cost source?

Answer

Leave a Reply

Your email address will not be published. Required fields are marked *