Bankston Feed and Supply Company buys on terms of 1/10, net 30, but it has not been taking discounts and has actually been paying in 60 days rather than 30 days. Bankston€™s balance sheet follows (thousands of dollars):

Now Bankston€™s suppliers are threatening to stop shipments unless the company begins making prompt payments (that is, paying in 30 days or less). The firm can borrow on a one-year note (call this a current liability) from its bank at a rate of 15 percent, discount interest, with a 20 percent compensating balance required. (Bankston€™s $50,000 in cash is needed for transactions; it cannot be used as part of the compensating balance.)
a. Determine what action Bankston should take by calculating (1) the cost of non-free trade credit and (2) the cost of the bank loan.
b. Assume that Bankston forgoes discounts and then borrows the amount needed from the bank to become current on its pay-ables. How large will the bank loan be?

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Cash Accounts receivable Inventories Current assets Accounts payable"“ Notes payable Accruals Current liabilities Long-term debt Common equity Total liabilities and equity $ 50 450 750 $1,250 $ 500 $ 600 150 1,250 Fixed assets Total assets 750 $2,000 $2,000 *Stated net of discounts.