Question: The Meyer Company must arrange financing for its working capital

The Meyer Company must arrange financing for its working capital requirements for the coming year. Meyer can
(a) Borrow from its bank on a simple interest basis (interest payable at the end of the loan) for one year at a 12 percent simple rate;
(b) Borrow on a three-month, renewable loan at an 11.5 percent simple rate;
(c) Obtain the needed funds by no longer taking discounts and thus increasing its accounts payable. Meyer buys on terms of 1/15, net 51. What is the EAR of the least expensive type of credit, assuming 360 days per year? Meyer’s account currently has a $0 balance.


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  • CreatedNovember 24, 2014
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