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.

  • CreatedNovember 24, 2014
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