Jerry Guardino comes to you for advice. He has just purchased a large amount of inventory with the terms 1/10, n/30. The amount of the invoice is $320,000. He is currently short of cash but has good credit. He can borrow the money needed to settle the account payable at an annual interest rate of 7%. Guardino is sure he will have the necessary cash by the due date of the invoice but not by the last day of the discount period.
Required
a. Convert the discount rate into an annual interest rate.
b. Make a recommendation regarding whether Guardino should borrow the money and pay off the account payable within the discount period.