Top Posters
Since Sunday
g
3
3
2
J
2
p
2
m
2
h
2
s
2
r
2
d
2
l
2
a
2
Home Q & A Board Other Fields Homework Help Business
New Topic  
borteleto borteleto
wrote...
Go to Answer
Posts: 2477
Rep: 2 0
5 years ago
Parsons Company has a cash flow problem. The company owes its suppliers $300,000 on credit terms of 2/10 net 40, but Parsons doesn't have the cash to pay during the discount period. Parsons, however, can borrow the $300,000 at annual rate of 24%. Should Parsons borrow the money to pay its accounts payable?
A) No, additional borrowing will cost more for interest ($60,000 per year) than the discount is worth.
B) Yes, the effective cost of forgoing the discount is greater than 24%.
C) No, the effective cost of forgoing the discount is equal to 24%, and there are transactions costs associated with borrowing.
D) It doesn't matter because the present value of the cost of borrowing is exactly equal to the amount of the discount for paying within 10 days.
Read 95 times
2 Replies
Replies
Answer verified by a subject expert
guzmanguzman
wrote...
#1
Top Poster
Posts: 1067
Rep: 10 0
5 years ago
Sign in or Sign up in seconds to unlock everything for free
1

Related Topics

borteleto Author
wrote...
#2
5 years ago
Brilliant
New Topic      
Quick Reply
Explore
Post your homework questions and get free online help from our incredible volunteers
  897 People Browsing
 195 Signed Up Today
Start New Topic Take the Tour CoursesNew Study Tools Topics Trending Browse by Textbook
Live Chat
Related Images
  
 239
  
 264
  
 278