Blue Grass Filters requires additional financing. Presently, it pays for all purchases on the discount date under terms of 2/15, net 75. Its banker will lend funds at 11 percent.
a. Should Blue Grass Filters obtain funding from the bank or by forgoing the cash discount?
b. Assuming the bank is the cheaper alternative, why might Blue Grass Filters still choose to forgo the cash discount to obtain financing?