Rapier Fencing requires $750,000 in financing for a 60‐day period. Three alternatives are being considered.
a. Establish a line of credit with the bank at an interest rate of 6 percent payable on a discounted basis.
b. Forgo trade discounts from suppliers on terms of 1.5/10, net 70.
c. Issue commercial paper for 60 days sold at a discounted price of 98.8 percent of maturity value.
a. What would be the rate of interest for bank loan? (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.)
Rate of Interest for bank loan %
b. What would be the cost of forgoing the cash discount? (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.)
Cost of forgoing the cash discount %
c. What would be the cost of commercial paper? (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.)
Discounted commercial paper %
d. Which alternative should be selected?
Bank loan
Cost of forgoing discount
Commerical paper
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