Question

Regis Clothiers can borrow from its bank at 17 percent to take a cash discount. The terms of the cash discount are 3/19, net 45.

  

a.	Compute the cost of not taking the cash discount. (Use a 360-day year. Do not round intermediate calculations. Input your final answer as a percent rounded to 2 decimal places.)

  

Cost of not taking a cash discount

%

  

b.	Should the firm borrow the funds?
	Yes No

Answer 1

a. Calculate the Cost of not taking cash discount. Discount % 360 Cost of not taking cash discount- (100%-Discount %) (Final due date-Total Discount period) 3% 360 (100-396) 42.82%) (45-19) b. If the cash discount is not taken the cost will be 42.82% i.e. more than the cost of loan. Therefore, the firm should borrow the money along with the cash discount.