Simple Simon's Bakery purchases supplies on terms of 1.7/10, net 29. If Simple Simon's chooses to...
Simple Simon's Bakery purchases supplies on terms of 1.7/10, net 29.
If Simple Simon's chooses to take the discount offered, it must obtain a bank loan to meet its short-term financing needs. A local bank has quoted Simple Simon's owner an interest rate of 10.5 % on borrowed funds. Should Simple Simon's enter the loan agreement with the bank and begin taking the discount? (Use 365 days for a year.)
Simple Simon's can earn an effective rate of %. (Round to one decimal place.)
Should Simple Simon's enter the loan agreement with the bank and begin taking the discount? (Select the best choice below.)
A. Simple Simon's will earn 39.0 % on its purchases by paying within the discount period and should enter into the loan agreement.
B. Simple Simon's will earn 24.1 % on its purchases by paying within the discount period and should enter into the loan agreement.
C. The discount rate of 1.7 % is considerably lower than the 10.5 % interest rate, so Simple Simon's should not enter into the loan agreement.
D. Need more information to answer the question.
--please show work
Homework Answers
![Option-A): Simple Simons will earn 39.0% on its purchases by paying within the discount period and should enter into the loan agreement. Reason The terms of sale 1.7/10, net 29 indicates that there will be 1.7% discount if the invoice is settled within 10 days; otherwise full invoice amount shall be settled within 29 days. Effective annual rate of return on this term shall be calculated as below: cost of not taking credits [1 + Discount %/(1-Discount % l#days i a year/ Ful alowed payment days Discount days. 1. So, Discount % # days in a year Full allowed payment days Discount days Effective annual rate of interest 1.7% 365 29 10 30,01% [141.7%)(1-1.79 [365/(29-101-1:1+1.7%/98.3%) [365/19]-1:0.3901 :39.01% Cost of not taking credit)](http://img.homeworklib.com/questions/232ca8a0-2be2-11eb-9d96-3b9c079d44c5.png?x-oss-process=image/resize,w_560)
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Simple Simon's Bakery purchases supplies on terms of 1.7/10,
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